ISDS allows foreign investors to sue our Government

Investor-State Dispute Settlement

Investor-State Dispute Settlement (ISDS) pitfalls

Not a fair legal 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.

The tribunals consist 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 over 950 outstanding cases, many against health, environment and other public interest laws.

Increasing numbers of ISDS cases against public interest legislation

Recent ISDS cases against health, environment 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 is suing the Canadian government because the state of Alberta decided to phase out coal-powerd energy. Read about more cases here 

  • Workers wages: The French Veolia company is suing the Egyptian government over a contract dispute in which they are 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. 

  • Privatisation: Mexican transport company ADO has threatened Portugal with a €42 million ISDS case after it cancelled plans to privatise part of Lisbon's public transport network. 

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 h 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 cost decision reinforces the case against the ISDS system. 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.

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. 

Learn more

Updated July 2018

UN study shows more governments rejecting or limiting foreign investor-rights to sue governments (ISDS)

June 12, 2019: A new study of trade and investment deals concluded in 2018 by the United Nations Conference on Trade and Development (UNCTAD) shows that most have either omitted ISDS altogether or severely limited its scope. This reflects growing concerns about ISDS cases based on older treaties that have no provisions to prevent or limit foreign investors from suing governments over health, environment and other public interest laws. The UN Commission on on International Trade Law (UNCITRAL)  is currently conducting a review of ISDS based on such concerns which has prompted sharp debate.

Nobel Laureate Stiglitz says ISDS is litigation terrorism which can discourage action on climate change

May 30, 2019: In a recent interview with Reuters Columbia University Professor Joseph Stiglitz has slammed trade deals that include Investor-State Dispute Settlement (ISDS). ISDS enables foreign investor rights to sue governments for millions in international tribunals over changes to environmental laws.

Report shows rapid increase in ISDS cases in 2018

May 29. 2019: The latest report by the United Nations Committee on Trade and Development (UNCTAD), which monitors known cases of global corporations suing governments, shows the number of ISDS cases reached 942 with 71 new cases by the end of 2018. This continues the rapid growth in cases over recent years and it is predicted that the total number of cases could reach 1000 in 2019.

Government failure to cancel old Indonesian Investment deal leaves Australia open to being sued over tobacco regulation and other public interest laws

May 22, 2019Legal academics have confirmed  that the recent Indonesia trade deal has no provisions to cancel the old 1993 Indonesia-Australia bilateral investment agreement, which will remain in force alongside the new agreement.

Adani’s threat to sue should not deter decisions to protect the environment says legal expert

May 9, 2019: UNSW legal researcher Dr Jonathan Bonnitcha has confirmed AFTINET’s concerns that the Adani mining company could use the Investor-State Dispute (ISDS) process in the India-Australia Bilateral Investment Treaty to claim compensation of billions of dollars from the Australian government if its mining licence is cancelled for environmental reasons.

Report shows mining companies use ISDS to undermine indigenous rights and environment in Latin America

8 May, 2019: A new report by the Institute for Policy Studies, MiningWatch Canada, and the Center for International Environmental Law examines all 38 known Investor-State Disputes that have been brought by mining companies against governments in Latin America. The companies are using special rights in trade and investment agreements to sue governments in international tribunals for billions of dollars in compensation for court decisions, laws and public policies that they claim reduce the value of their investments. Many of these laws and policies protect indigenous land rights, health or the environment.

Study shows Investment tribunals make governments pay foreign investors for democratic reforms

April 29, 2019: An academic study by Jonathon Bonnitcha and Zoe Williams has systematically analysed Investor-state dispute Settlement (ISDS) cases in which foreign Investors have successfully argued that they should be compensated for new laws or policies resulting from changes of government or other democratic pressures.

Pages