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Chapter 1: Introduction

There is little use in going to law with the devil while the court is held in hell.

Humphrey OíSullivan, The Diary of an Irish Countryman, 1831

Would you go to court with the devil if the court was held in hell? Of course not. But governments have done it hundreds of times. And continue to do so.

In international investment disputes multinational companies can sue governments if the government has done something that the multinational considered harmful to its profits. For example, tobacco giant Philip Morris is suing Uruguay and Australia because they introduced compulsory health warnings on cigarette packets. Energy company Vattenfall is suing Germany because the country decided to phaseout nuclear energy.

These cases take place before an international tribunal of arbitrators, three people who decide whether private profits or the public interest are the most important. Across the world these tribunals have granted big business millions of dollars from taxpayers’ pockets – often in compensation for the alleged impact on company profits of democratically made laws that protect the environment, public health or social well-being.

The legal bases for these disputes are investment treaties between states. Historically, they were put in place by Western governments wanting to protect their companies when they invested abroad. They wanted to grant their investors access to a fair and independent dispute settlement system if they ran into problems with the host state. The host state’s own courts were considered too biased, too slow and sometimes too corrupt to play that role. Hence the idea of a ‘neutral’ body of legal experts, the arbitrators, who should act as independent mediators.

The idea of investment arbitration as a fair and independent space to resolve disputes between multinationals and governments is one of the key justifications for a system which has cost taxpayers dearly and undermines the capacity of sovereign governments to act in the interests of their people.

This report argues that the alleged fairness and independence of investment arbitration is an illusion. The law and the consequential disputes are largely shaped by law firms, arbitrators and, more recently, a phalanx of speculators who make a lot of money from the disputes. Driven by their own profit interests, this ‘arbitration industry’ actively encourages an ever-growing number of corporate claims, while creating the necessary legal loopholes and funding mechanisms for its continued functioning. This industry is also responsible for growing its own business with pro-investor interpretations of the treaties. Meanwhile, investment lawyers actively fight for maintaining investment arbitration against its critics, in academic circles and through direct political lobbying against reforms in the public interest.

By signing investment treaties and agreeing to arbitration, states have indeed accepted to be sued by the devil in hell.

Investment arbitration lawyers, arbitrators and funders have largely escaped public attention. Many of their cases are unknown and some never become public. The vested interest behind their actions is well hidden by a thick layer of legal rhetoric about judicial independence, fairness and advancing the rule of law. It is therefore time to shine a spotlight on the key actors in the arbitration industry, who drive and profit from the injustices of global investment rules.

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