Brussels/ Amsterdam – A small club of international law firms, arbitrators and financial speculators are fuelling an investment arbitration boom that is costing taxpayers billions of dollars and preventing legislation in the public interest, according to a new report from the Transnational Institute and Corporate Europe Observatory published today.
Profiting from Injustice uncovers a secretive but burgeoning legal industry which benefits multinationals at the expense of taxpayers, the environment and human rights. Law firms and arbitrators, who are making millions from investment disputes against governments, are actively promoting new cases and lobbying against reform in the public interest.
Cecilia Olivet, from the Transnational Institute, one of the report's authors said:
“The alleged fairness and independence of investment arbitration is entirely illusory. Governments have their hands tied, while multinationals benefit from an inherently pro-corporate bias. A handful of firms are actively encouraging corporate clients to sue governments; meanwhile top arbitrators are using their influence to secure investor-friendly rules and sustain the flow of multi-million dollar lawsuits.”
The 76-page report explains how investment arbitration, which was originally envisioned for cases of straightforward expropriation, has boomed in recent years. There were 450 known cases in 2011, compared to 38 in 1996.1 Fees and awards have also skyrocketed, with legal and arbitration costs averaging over US$8m per dispute, and exceeding US$30m in some cases.2
The industry is dominated by a small number of northern law firms3 and elite arbitrators4. Three firms, Freshfields (UK), White & Case (US), and King & Spalding (US) claim to have been involved in 130 investment treaty cases in 2011 alone, while fifteen arbitrators – the ‘inner mafia’ – have decided on 55% of all known investment treaty disputes.
Many arbitrators also act as counsel, as well as working as academics, government advisors, lobbyists and media commentators. Some have strong personal and commercial ties to companies. All this gives them huge influence over the system, which they have a vested interest in sustaining.5
The report also describes a new aspect to the investment arbitration industry: third-party funding. Increasingly, investment funds such as Burford (US) and Juridicia (UK) are speculating on cases, lending money to companies so they can sue governments, taking between 20% and 50% of the final award.6
Emblematic investor-state disputes include tobacco giant Philip Morris suing Uruguay and Australia over health warnings on cigarette packets; and Swedish energy multinational Vattenfall seeking $3.7bn from Germany following that country’s decision to phase out nuclear energy.7
Some governments are taking action against investment arbitration. Australia no longer allows investor-state provisions in its trade agreements. Bolivia, Ecuador and Venezuela have terminated several investment treaties; and South Africa has just announced that it will neither enter into new agreements nor renew old ones.
Pia Eberhardt from Corporate Europe Observatory, the other author, said:
“The self-serving actions of the investment arbitration industry have unveiled the inherent injustices at the heart of the international investment regime. Governments should either refuse to sign investment treaties, exclude clauses that allow companies to sue the state, or, at the very least, ensure public interest legislation such as environmental protection and human rights can not be challenged.”
Pia Eberhardt, Corporate Europe Observatory, in Germany +49221789 67810 or +4915256309102 or firstname.lastname@example.org
Cecilia Olivet, Transnational Institute, in the Philippines, +639174690163 or email@example.com
Nick Buxton, Transnational Institute, in the US, +15309023772 or firstname.lastname@example.org
- 1. By the end of 2011, the United Nations Conference on Trade and Development (UNCTAD) knew of 450 investor-state disputes. With most arbitration forums subject to confidentiality, the actual number is likely to be much greater. In 1996, only 38 investor-state disputes had been registered at the World Bank’s International Center for Settlement of Investment Disputes (ICSID), the main handler for these arbitrations. (See chapter 2)
- 2. In 2009/2010, 151 cases involved corporations demanding at least US$100m from states. One government has just been ordered to pay US$1.7bn in compensation. (See chapter 2 and 3)
- 3. Top 20 firms: Freshfields Brukhaus Deringer (UK); White & Case (US); King & Spalding (US); Curtis Mallet-Prevost, Colt & Mosle (US); Sidley Austin (US); Arnold & Porter (US); Crowell & Moring (US); K&L Gates (US); Shearman & Sterling (US); DLA Piper (US); Chadbourne & Parke (US); Cleary Gottlieb Steen & Hamilton (US); Appleton & Associates (Canada); Foley Hoag (US); Latham & Watkins (US); Hogan Lovells (US / UK); Clyde & Co (UK); Norton Rose (UK); Salans (France); Debevoise & Plimpton (US) (see chapter 3)
- 4. Top 15 investment arbitrators: Brigitte Stern (France); Charles Brower (US); Franciso Orrego Vicuña (Chile); Marc Lalonde (Canada); L. Yves Fortier (Canada); Gabrielle Kaufmann-Kohler (Switzerland); Albert Jan van den Berg (Netherlands); Karl-Heinz Böckstiegel (Germany); Bernard Hanotiau (Belgium); Jan Paulsson (France); Stephen M. Schwebel (US); Henri Alvarez (Canada); Emmanuel Gaillard (France); William W. Park (US); Daniel Price (US) (See chapter 4)
- 5. Daniel Price has worked in government, as investment lawyer and as an arbitrator. He has benefited from the investment treaties he helped to negotiate. As Deputy General Counsel for the Office of the US Trade Representative, Price negotiated the investment provisions of the North-American Free Trade Agreement NAFTA Chapter XI and the bilateral investment treaty between the US and Russia for the US. When Russia was sued for US$103bn in the largest claim ever, the investors appointed him as arbitrator. (See chapter 4)
- 6. Prominent third-party funders in investment arbitration: Burford Capital (US); Juridica Investment Ltd (UK); Omni Bridgeway (Netherlands); Fulbrook Management (US); Calunius Capital (UK) (See chapter 5)
- 7. In the midst of the recent debt crisis in Greece, a number of law firms urged multinational corporations to use investment arbitration to defend their profits. K&L Gates suggested clients should use the threat of arbitration as a ‘bargaining tool’ in debt restructuring negotiations. Meanwhile, during the civil war in Libya, firms including Freshfields, advised their clients on how to use investment treaties to sue the Libyan state. The new government might now have to compensate companies that supported the dictatorial regime. (See chapter 3)