Investor State Dispute Settlement: Just for Corporations?

I’ve been toying with the idea of whether Investor State Dispute Settlement (ISDS) tribunals could be used for anything but evil. Rather than repeat the many, many detailed and well-researched critiques of ISDS, this post is about whether ISDS could be used to benefit the public, rather than just expand corporate power.

I see two ways to approach this: (1) by redefining who could be a “foreign investor”, and (2) by exploring human rights counter-claims brought by governments.

Foreign Investors

To be a “foreign investor,” one can be a corporation or a natural person who has invested, whether prior to or after entry into the operative agreement containing the ISDS provision, in a foreign country. So for example, in the bilateral investment treaty (BIT) between the Netherlands and Nigeria, there is an ISDS provision. A citizen of the Netherlands who invested in Nigeria could bring a claim against the Nigerian government for expropriation under that provision, so long as that person did not also have Nigerian citizenship.

Oil pollution in Ogoniland, Niger Delta. Photo: Milieudefensie via Flickr (CC BY-NC-SA)

Oil pollution in Ogoniland, Niger Delta. Photo: Milieudefensie via Flickr (CC BY-NC-SA)

This latter piece is important. I first started thinking about this possibility in the context of the Ogoni of the Niger Delta, whose land has been ravaged by a subsidiary of Royal Dutch Shell, in collaboration with the Nigerian government. The land’s value has been greatly diminished by the environmental destruction there, including a reduced ability to grow food, poisoned water supplies and general desertification. This would be an “expropriation” as typically interpreted in ISDS. There are thousands of members of the Ogoni tribe living outside of Nigeria, who have obtained citizenship in foreign countries and who still own land through collective, familial land titles in the Ogonilands. As citizens of one country (party to a BIT), with investments in another (also party to the BIT), they’re foreign investors, right? Unfortunately, since they likely will not have renounced their Nigerian citizenship, even an Ogoni citizen of the Netherlands would be unable to bring a claim as a “foreign” investor since they are still nationals of the country in which they invested.

But what if the “foreign investor” was a foreign NGO working in the Ogonilands? They would still need to be able to claim some sort of expropriation. Presumably such an NGO would not own land, but their operations in the Ogonilands could be construed as an “investment” as they no doubt spent money to carry out their program there. Could there be an argument about investment of human capital? An investment in human flourishing? What if instead of an NGO it was some sort of social enterprise, selling mosquito nets or drilling wells? Could the expropriation of the lands of the Ogoni impact their business such that they could claim expropriation?

I’m going to go out on a limb here and say there are few sets of facts under which such a theory would work. But if it did, it would be either an opportunity (1) to expose ISDS for what it really is (redistribution to the world’s biggest corporations), or (2) (in the case of a collaboration between affected communities and an NGO/social enterprise) to win back some reparations for victims in the region.

But beyond the right set of facts, you’d need a whole lot of cash. The barrier to entry here is substantial: $25k just to file a claim, plus $32k per year in fees. And that doesn’t even include paying the arbitrators ($3k per day, each) and the lawyers (let’s just hope they’re pro bono).

Human Rights Counterclaims

This is a fairly recent phenomenon, but it’s happened, and it pushes the bounds of ISDS. Typically, ISDS gives investors only, not states, the ability to resolve claims outside of local courts.

Pretty much every critique of these tribunals assumes this to be the case, as do litigants themselves. In Urbaser SA and Consorcio de Aguas Bilbao Bizkaia v. Argentina, two Spanish companies operating Argentina’s water and sewer concession sued the government of Argentina after Argentina took economic measures to control the 2001 financial crisis there. When Argentina became the first government to file a human rights counterclaim, the corporations argued that under these BITs, corporations can sue governments, with no reciprocity. Specifically, the claimants said BITs

“neither provide for the procedure for submission of a State’s counterclaims nor even mention the right of an investor to submit counterclaims. This means that investment Treaties  do not impose obligations upon investors and, accordingly, that host States cannot rely on the violation of the provision of any such Treaty as basis to sue an investor. Such a right to claim would run counter to the object and purpose of treaty arbitration, which is to grant the investors a one-sided right of quasi-judicial review of national regulatory action.”

That’s right: a “one-sided right of quasi-judicial review of national regulatory action.” And that’s how an ISDS proponent is describing it. But I digress.

Argentina’s counterclaim said the claimant companies had violated Argentines’ right to water, and the tribunal surprisingly determined it had jurisdiction over the claim. While it ultimately dismissed it on the merits, the fact of jurisdiction is a huge deal, and could pave the way for governments to defend themselves in other cases.

One hiccup is that in this particular case, the wording of the Bilateral Investment Treaty in question may have been especially vague, and it was this wording that formed the basis of the Tribunal’s decision to accept jurisdiction. But as each treaty has slightly different wording, this vagueness may not be isolated. For future treaties, though, as one blogger suggests, “Can we assume that the powers that be have learned their lesson, and future treaties will be drafted in a way that prevents these counterclaims?

I should also note that these tribunals are not bound by precedent. So let’s be clear that the Urbaser case, even if not distinguished by the particularly vague BIT language, would not be binding on any future tribunals. This is another part of the critique of the tribunals themselves, but on the upside, it could cut both ways.

The only other case of such a counterclaim was in Burlington Resources Inc. v Republic of Ecuador (discussed in greater detail here), where a U.S. oil company brought a claim against Ecuador related to national legislation raising taxes on the oil industry. In 2011, Ecuador responded with (1) environmental counterclaims related to the claimants’ soil and groundwater contamination, and (2) counterclaims related to the claimants’ failure to appropriately maintain oil fields and equipment. Remarkably, Ecuador won both counterclaims, and was awarded 41.7million USD in February 2017.

Here again, there are particularities of the case that make it difficult to replicate (both parties agreed up front to jurisdiction, so they had no need to rely on poor drafting of a BIT). But as the idea of human rights counterclaims picks up steam, states will strategize ways to strike back against the worst of corporate behavior.

A More Ethical Future for ISDS?

Nah, probably not. But ISDS exists for the exclusive benefit of corporations, allowing them to maintain their hegemony in the global economy. If ISDS tribunals began allowing other types of claims, claims that could harm corporations, foreign investors might decide to take their chances with regular courts, just like the rest of us. Which is to say, if corporations cease to be the only actors who can bring claims, and the tribunals cease to confer upon them unreasonable advantages, the whole ISDS project might be abandoned. And I think that would be a win for justice.

Charity Ryerson is a co-founder and legal designer for Corporate Accountability Lab.