Two weeks ago, a group of “International Law Experts” released an open letter defending the expansion of ISDS in proposed mega-deals like the TPP (Trans-Pacific Partnership) and the TTIP (Transatlantic Trade and Investment Partnership).
I was sufficiently irked by the open letter to write this reply. Essentially, the open letter is a whitewashed, promotional account of ISDS, premised on a selective and rosy portrayal of ISDS and of how foreign investors and arbitrators have used their power in ISDS.
The open letter responded to another statement by over 100 U.S. law professors who criticized ISDS in strong terms. I was not a signatory of the other statement, but have also criticized ISDS as a serious threat to democracy, courts, and public budgets.
The non-disclosure of apparent financial interests among the International Law Experts
I begin by saying that those who rely on claims of legal expertise to bolster their position in a public debate should disclose any significant financial interests they have in the outcome of the debate.
I stress this point because many signatories of the International Law Experts’ open letter have worked, and presumably earned substantial income, as an arbitrator, lawyer, or expert in ISDS. Yet, this apparent financial interest was not disclosed in the open letter. Everyone has the right to free speech but, in fairness to the public, this information should have been disclosed alongside the claims of expertise.
The open letter’s origins in the Yves Fortier Chair at McGill University
The open letter emanates from a website at McGill University in Montreal, Canada, and specifically from the “L. Yves Fortier Chair in International Arbitration and International Commercial Law” at McGill. This professorial Chair is currently occupied by Andrea Bjorklund, a signatory and contact person for the open letter.
So, it is relevant to highlight that Yves Fortier is almost certainly the most active ISDS arbitrator in Canada and possibly the most active ISDS arbitrator in the world. In my research on how ISDS arbitrators have resolved ambiguous legal issues that shape their powers, Fortier—like most leading arbitrators—had a record that tended heavily toward the interests of foreign investors and against sued countries and their taxpayers.
Fortier has also presided over several tribunals whose decisions effectively blew open ISDS in key ways, facilitating the massive explosion of foreign investor lawsuits we have seen since the early 2000s. The three most significant of these tribunals, in my view, are the annulment tribunal in Vivendi v Argentina No. 1 (which put in place the arbitrators’ liberal policy of allowing parallel treaty claims even when there is a closely-related contract with its own dispute-settlement clause), the Oxy v Ecuador No 2 tribunal (which awarded, on dubious reasoning, the largest known amount, about US$2 billion, to that point), and the Yukos v Russia tribunal (which awarded, also on dubious reasoning, the almost satirically vast amount of US$50 billion). In each of these cases, Fortier presided over a decision that greatly expanded the risks and costs of ISDS for countries and their people.
Fortier’s record also provides an example of the lucrative fees billed by ISDS arbitrators. In the Yukos v Russia case, in particular, Fortier billed an astronomical US$2.3 million in arbitration fees, equivalent to about seven years’ salary for a Supreme Court of Canada judge. I am not saying that this establishes any personal impropriety on Fortier’s part. Rather, it highlights the huge amounts of money sloshing around for arbitrators, lawyers, and academics in ISDS and the importance of ISDS practitioners disclosing their financial interests when promoting ISDS to the public.
This background for the open letter offers a symbolic link between the letter and the ISDS arbitration industry. More broadly, it raises questions about how the naming of professorial chairs at universities may give reason to doubt the credibility of a professor’s engagement in public discourse.
The International Law Experts’ claim of superior expertise
In the rest of this blog post, I focus line by line on the press release that was issued alongside the open letter. The press release was released by the letter’s organizers and it conveniently reproduces core issues and statements from the letter. And, while there is more to say about the open letter as a whole, I prefer here to keep things fairly short. Further, there is enough in what the press release highlighted to make the point that the open letter is full of misleading or inaccurate claims.
The press release begins:
Around the middle of March , the Alliance for Justice (AFJ) circulated a letter signed by law professors encapsulating their objections to the inclusion of investor‐state dispute settlement (ISDS) in international economic law treaties. As the majority of signatories of the AFJ letter were not scholars of international law and may therefore be unfamiliar with the subtleties of international dispute settlement, a group of over forty international law professors have mobilized to provide a counter‐point to the AFJ letter.
Thus, the open letter was accompanied by a claim of superior expertise on the part of its signatories. The signatories were described as “scholars of international law”, compared to the other law professors who had criticized ISDS. As mentioned above, it was not disclosed that many signatories of the open letter were also financially-interested practitioners of ISDS.
In my experience, as an academic specializing in the international law of ISDS, it is very positive for scholars outside the immediate field of ISDS to pay attention to it, not least because such scholars have a more detached perspective. In particular, the statement by the professors who criticized ISDS was a welcome contribution that appeared to me to come from an admirably sophisticated understanding of ISDS and related issues of international law.
Many scholars from outside the immediate field have contributed key insights, such as the insight I attribute mostly to economist Emma Aisbett that ISDS is in effect a public subsidy for foreign investors against general risks of democracy, politics, and courts that apply to everyone else. As for any public subsidy, it is up to those who advocate for the subsidy to provide a compelling argument that the subsidy delivers a corresponding benefit to the public.
I have not seen anything close to a compelling case for ISDS in this respect; that is, to justify giving ISDS arbitrators a supreme power over legislatures, governments, and courts. Instead, one tends to see a steady and evolving stream of assertions about the alleged benefits of ISDS, not backed by systematic evidence and based often on misleading information. The open letter is a good example.
The International Law Experts’ selective and rosy portrayal of ISDS
The press release continued:
The counter‐point [in the open letter] is not provided to provide a definitive conclusion about the proper form of dispute settlement, as negotiating those boundaries is the province of states. Rather, the letter is designed to frame the discussion, to offer accurate information to inform the public, and to enable policy makers to make well‐informed choices.
The main problem with this statement is that the signatories did not live up to their commitment to the public. That is, they did not give “accurate information” to support “well-informed choices”. Likewise, they did not—as implied in the open letter—provide “facts and balanced representations” instead of “errors or skewed information”. On the contrary, the open letter gives a selective and rosy account of how ISDS arbitrators have used their power. Below, I elaborate on this criticism and offer some supporting references from my own published research.
The press release continues:
Core aspects from this letter address sovereignty, the rule of law, the procedural protections offered in investment treaty arbitration, and opportunities for transparency and public participation during investment treaty arbitration.
If the open letter was meant to contribute to well-informed choices about ISDS, its signatories should have acknowledged the key criticisms on questions of sovereignty, the rule of law, and so on.
For example, they should have acknowledged the criticisms that: (1) ISDS involves an unjustified transfer of power from legislatures, governments, and courts to foreign investors and for-profit arbitrators, (2) ISDS has the effect of removing institutional safeguards of judicial independence and due process and thus fails to live up to basic elements of the rule of law, (3) ISDS procedures are procedurally unfair because they do not allow parties whose interests are affected by the adjudicative process to seek full standing in the process, and (4) ISDS documents, in all cases, remain closed to the public in ways that an open court would not be closed and, in some cases, all ISDS proceedings and documents are kept secret.
These criticisms have been raised on the academic record for years (such as here). Yet, none of them was acknowledged, let alone discussed in a serious way, in the press release or the open letter. For this reason, I suggest that the International Law Experts’ intervention should be viewed more as an exercise in avoiding the serious flaws in ISDS than a reliable source of information for the public.
Next the press release highlighted core aspects of the open letter. The first was as follows:
It is a hallmark of the rule of law that states must justify their acts and take responsibility for improper conduct. Far from undermining the rule of law, investment treaty arbitration ensures that states honor their obligations, thereby reinforcing the rule of law.
This statement, drawn from the open letter, sidestepped entirely the threat posed by ISDS to judicial independence, the separation of powers, and due process, each of which is a “hallmark” of the rule of law.
Instead, the open letter asserted a minimalist version of the rule of law, reducing it to the idea that states must “honor their obligations”. By this logic, two tyrants who honoured their anti-democratic commitments to each other would apparently deliver on the rule of law!
This minimalist version of the rule of law also reveals the key problem: governments are pushing for agreements that will undermine the rule of law (and democracy and sovereignty) in their countries. Moreover, they undermine these values in a way that is exceptionally powerful, compared to all of the international legal protections available to everyone except for foreign investors, and that is practically irreversible by future governments.
The press release, drawing on the open letter, goes on to say:
Experience to date suggests that bona fide government conduct will pass muster and not generate state liability.
This statement is a whitewash. For one, it is unsupported by references to systematic evidence in the press release or the open letter. Thus, it is backed almost entirely by the International Law Experts’ collective claim of expertise, again without the disclosure of apparent financial interests within the group. Moreover, it is contradicted by systematic research drawn from hundreds of ISDS decisions, such as here and here.
Next the press release reproduces this statement from the open letter:
All systems of justice, whether national courts or international courts and tribunals, are capable of improvement. It is essential, however, that the current debate be based on accurate information and not focus on perceived, isolated shortcomings that are present in some form in any and every adjudicative body.
Well, of course, all systems of justice are capable of improvement. Virtually everything in the world can be improved!
But the pressing issue here is that no system of “justice”—except ISDS—is so flawed as to allow arbitrators, whose income depends on how they interpret the law or resolve a dispute, to determine the boundaries of permissible sovereign conduct and re-allocate public money accordingly. And, no system of adjudication worthy of the name “justice” would allow these profoundly-important decisions to be taken without requiring the adjudicator to hear from all of the parties affected directly by the adjudication—other such parties have included, for example, sub-national governments and other private parties.
The lack of independence and fairness in ISDS undermines all of the decisions that emanate from the process—giving rise to fundamental flaws in ISDS, not merely “perceived, isolated” shortcomings.
The press release, drawing on the open letter, also says:
Both investors and states have won and lost cases, though states have won in a greater proportion than investors. At current rates, states have won roughly three cases for every two cases won by investors.
It is a misnomer to say that any country has actually “won” an ISDS case, at least in the way that foreign investors are said here to have won: by receiving an award of compensation in their favour and against the other side. Countries cannot bring an ISDS lawsuit against a foreign investor; usually they have not even had their costs reimbursed when a foreign investor’s claim was rejected. At best, countries—and their voters and taxpayers—only avoid losing in ISDS.
This information in the open letter is also misleading because it does not account for the many ISDS cases that settle, off the public record. It is fair to describe these cases as “wins” for foreign investors, on the assumption that foreign investors got an outcome—typically a change to a government decision or a public pay-out—that would have been less likely or impossible in domestic law and other international processes.
Foreign investors benefit in all kinds of ways from their privileged access to ISDS and from the special opportunities it creates to pressure countries into settlements. For example, in domestic law it is usually not possible for a private party receive public compensation for a legislative or court decision. In contrast, numerous ISDS awards have required compensation for foreign investors who experienced economic loss as a result of one or the other of these types of decision. The key benefit to foreign investors lies in their special access to a process that can override the usual democratic or judicial process applying to everyone else.
Similarly, other international processes are not nearly as powerful in the protections they afford to, say, victims of torture (unless the victim happens to be a foreign investor who can afford to litigate in ISDS!). The wide disparity in the international protections available to foreign investors, compared to everyone else, is part of the gross imbalance created by ISDS.
The press release then adds:
Investment treaty arbitrations are procedurally complex and involve the gathering of evidence, the submission of expert testimony, the making of legal arguments, and the submission of briefs.
I agree with this statement; ISDS does often involve complex litigation. But why highlight this banal aspect of ISDS while ignoring issues central to the debate about ISDS? For example, there was no discussion in the open letter of the power of ISDS arbitrators to override legislatures and courts, especially by ordering huge amounts of public money to be paid to large corporations and very wealthy individuals (see my post on this blog in March 2015).
In a particularly white-washed statement, the press release says:
Awards are subject to review either in national courts or by ad hoc annulment committees composed of representatives drawn from rosters created by states.
The trouble with this statement, and the corresponding description in the open letter, is that it does not make clear that courts can only review ISDS awards on very limited grounds and that ISDS tribunals themselves can decide which country’s courts will have the power to review and set aside the tribunal’s decisions. Thus, absurdly, the arbitrators have the power to ensure that their own decisions receive “light touch” review.
Also, this statement does not make clear that the “annulment committees” (at the World Bank)—which are the only avenue of review of many ISDS tribunals—are themselves made up of more for-profit arbitrators and that the “rosters” from which these arbitrators are drawn are not judicial rosters. That is, the annulment rosters do not serve as a list of persons to whom cases will be assigned objectively, by rotation or random assignment for example. Instead, an executive official has the power to appoint from the roster on a case-by-case basis. It is incompatible with judicial independence for an executive official to be able to control case assignments in this way, and thus to be able to keep sensitive cases in safe hands.
Finally, the press release touched on the issue of openness in ISDS:
The United States and Canada have been key proponents of transparency in investor‐state arbitration and have made all documents in their cases readily accessible to the public; other countries have started to follow suit.
Indeed, Canada and the U.S. did push since the early 2000s for more openness in ISDS. However, they have not made all of the documents in ISDS cases “readily accessible” in the manner of an open court. For example, I have an access-to-information request to the Canadian government—which has been pending for over a year—for copies of ISDS witness statements filed in a historical NAFTA case. Such documents would be “readily accessible” in an open court; they are not in ISDS.
Also, as is also well-documented, the Canadian government recently pulled back from its past commitment to more openness in ISDS. Canada did so in the Canada-China investment treaty, which gives the governments of Canada and China an express right to keep foreign investor lawsuits completely secret, so long as the lawsuit it settled before an award is issued.
Even under NAFTA, albeit to a lesser extent, secret settlements are possible for both Canada and the U.S. Either government can settle an ISDS dispute in secret so long as the settlement is reached before a formal claim is filed. For this reason, we simply do not know how often and to what degree ISDS has actually delivered behind-the-scenes favouritism and pay-outs for foreign investors.
Lastly, Canada and the U.S. have treaties that allow complete secrecy in ISDS when a lawsuit is brought by a Canadian or U.S. investor against another country. While this may be explained partly by the other country’s desire for secrecy, it indicates that Canada and the U.S. have not used their bargaining power—almost always in treaties with smaller developing or transition economies—to insist on full openness.
The unfairness to the public
It is disappointing to see lawyers and academics promoting ISDS in misleading and at times self-serving ways.
I think such spin is particularly unfair to members of the public, who do not have the luxury and protection afforded to professors to develop their expertise freely and to research what is happening in hundreds of ISDS cases. I hope that this blog entry has at least pointed to important reasons to question how ISDS promoters go about making their case.
For examples of other statements by scholars who have specialized knowledge of ISDS and who, like me, have criticized ISDS in strong terms, see here and here. Notably, those who signed these other statements did not stand to benefit financially—and sometimes stood to lose out—from the anti-ISDS position they took.