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

Media reports suggest companies could use ISDS against a future UK Labour government

August 19, 2019: The Financial Times is reporting that a future UK Labour government could face a flood of ISDS claims if it were to attempt to nationalise utility services. The report comes after the Labour Party announced its plan to nationalise the energy grid and other unities if it were elected in the next general election, and warned that compensation could be below market value.

South Korean Prime Minister considers abolishing ISDS

July 16, 2019: Media reports from South Korea have suggested that South Korean Prime Minister Mr. Lee Nak-Yeon is considering abolishing ISDS from Korean Trade agreements. The reports state that Prime Minister Lee Nak-Yeon made the remark in the National Assembly while responding to a lawmaker, Mr. Song, at the plenary session of the Budget and Accounting Committee.

New report on ten ISDS cases shows human impacts of corporations suing governments over health and environmental laws

June 25, 2019: A new report "Red carpet courts: 10 stories of how the rich and powerful hijacked justice" published by Friends of the Earth, the Transnational Institute (TNI) and Corporate Europe Observatory (CEO) presents ten ISDS cases that have been filed, threatened or decided since 2015. The report aims to show the human stories behind these ISDS cases.

Community groups urge ASEAN leaders to oppose ISDS in the RCEP and instead support people-centred development

June 24 2019: Leaders of the ten ASEAN countries met in Bangkok on June 22 and urged support for the Regional Comprehensive Economic Partnership (RCEP) trade and investment deal between ASEAN and India, China, Japan, South Korea, Australia and New Zealand. But community organisation advocates meeting before the ASEAN summit argued that the RCEP development model favours international investor interests over people and the environment.

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.

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