Investor-State Dispute Settlement (ISDS): corporate power vs the public interest

An unbalanced and unfair system  

ISDS gives special rights to foreign investors (that are not available to local investors) to bypass national courts and sue governments for millions of dollars if they can claim that a change in law or policy will harm their investment. ISDS has been included in some trade and investment agreements. All such agreements have government-to-government dispute systems, but not all have ISDS.

ISDS is a fundamentally unbalanced system that gives additional legal rights to global corporations that already have enormous market power. Strong community opposition has kept it out of World Trade Organisation agreements, and of recent agreements like the Regional comprehensive Economic Partnership (RCEP), the Australia-UK Free Trade Agreement and the Australia-EU Free Trade Agreement.

The tribunals which hear the claims are not courts but temporary tribunals of investment lawyers who can continue to be practicing lawyers, with obvious conflicts of interest. Australia’s High Court Chief Justice and other legal experts have said that ISDS is not a fair legal system because it has no independent judges, no precedents and no appeals. There are 1303 known cases, many against health, environment, regulation of carbon emissions and other public interest laws.

Increasing numbers of ISDS cases against public interest legislation

Recent ISDS cases against health, environment, minimum wage rises and other public interest legislation include:

  • Public health: The Swiss pharmaceutical company Novartis threatened to sue the Colombian government over plans to reduce the price of a patented medicine to treat leukaemia. Read about more cases here.

  • Environment: the US Bilcon company won millions of dollars of compensation from Canada of because its application for a quarry development was refused by a local government for environmental reasons. The US Westmoreland coal mining company sued the Canadian government because the state of Alberta decided to phase out coal-powered energy.  In Europe, German energy companies RWE and Uniper have ISDS took cases against the Netherlands (under the Energy Charter Treaty) over its moves to phase out coal-fired power stations by 2030.The Intergovernmental Panel on Climate Change’s May 2022 report Climate Change 2022: Impacts, Adaptation & Vulnerability warned that ISDS clauses in trade agreements threaten action to reduce emissions.

  • Workers wages: The French Veolia company sued the Egyptian government over a contract dispute, claiming compensation for a rise in the minimum wage.

  • Indigenous land rights: An ISDS tribunal ordered the Peruvian government to pay $24 million to the Canadian Bear Creek mining company because it cancelled a mining license after the company failed to obtain informed consent from Indigenous land owners about the mine, leading to mass protests. ISDS rewarded the company for ignoring Indigenous land rights. 

  • Philip Morris tobacco company vs Australia: when even winning is losing

    Even if a government wins the case, defending it can take years and cost tens of millions of dollars. For example, tobacco companies lost their claim for compensation for Australia’s 2011 plain packaging legislation in Australia’s High Court. The US-based Philip Morris company did not accept this decision under Australian law. The company could not sue under the US-Australia FTA because that agreement had no ISDS clause. The company found a Hong Kong-Australia investment agreement containing ISDS, shifted some assets to Hong Kong, claimed to be a Hong Kong company and sued the Australian Government, claiming billions in compensation. It took over four years and millions in legal fees for the tribunal to decide the threshold issue in December 2015 that Philip Morris was not a Hong Kong company.

    Although the tribunal in July 2017 eventually awarded a proportion of the legal and arbitration costs to Australia, the proportion and amount of the costs were blacked out in the tribunal’s cost decision. This was a failure of public accountability both by the tribunal and the Australian government, as taxpayers have a right to know the costs of defending ISDS cases. Community organisations called for the Australian government to reveal the costs. The government initially appealed an FOI case decision that it should reveal the costs, but on July 2, 2018 released total figures for the High Court case and the Philip Morris case that showed a total of $39 million.

    The government refused to reveal the specific ISDS legal costs and what percentage of the total costs had been awarded to Australia. The most recent FOI case on the ISDS costs, launched in 2017 by a legal publication, took another two years to reveal in February 2019 that Australian taxpayers were awarded only half of the costs of almost $A24 million in both legal fees and arbitration costs, despite the finding that the case was an abuse of process.

    This confirms that, even if governments win ISDS cases, defending them takes years (in this case seven years before costs were awarded) and tens of millions of dollars. 

    Australia could afford to defend the case, but $12 million is still a loss to taxpayers that could have been spent on health or other community services. Developing countries simply cannot afford these costs, let alone the billions awarded if they lose cases. For example, Pakistan had to pay US$5billion when it lost a dispute over a mining lisence, which was almst equal to an International Monerary Fund loan granted to address a severe budegtary crisis.

    See also AFTINET's submission to DFAT's review of Australia's bilateral investment treaties which documents Australiian mining companies suing low-income countries here. (September 2020).

    ISDS has also enabled Australian billionaire Clive Palmer to register a mining company in Singaore, claim to be a Singaporean investor and use ISDS in the ASEAN-Australia-NZ Free Trade Agreement and in the Singapore-Australia Free Trade Agreement in three separate cases to claim a total of $410 billion from the Australian government.

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    Updated January 2024