Injustices in Investor-State Arbitration are Fueled by the Arbitration Industry, New Report Finds

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A new report from Corporate Europe Observatory and the Transnational Institute details problems with the system of investor-state arbitration and charges that the arbitration industry – including law firms and arbitrators – are contributing to the injustices in the system.

Enshrined in a number of investment treaties between governments, investor-state arbitration allows private companies from one country who invest in another country to file a complaint against the host government if they feel they’re being treated unfairly. The complaint is heard outside any court system, by a panel of arbitrators who issue a decision that is usually confidential and is supposed to be binding.

We have previously noted how arbitration is being abused by companies, including cases in which the US mining company Doe Run filed a complaint against the government of Peru arguing that it’s unfair to subject them to Peruvian environmental laws, and a case in which Chevron has already succeeded in getting an arbitration panel to tell the government of Ecuador to prevent enforcement of a judgment for massive contamination of the Amazon, arguing that the Ecuadorian government has treated it unfairly in litigation in Ecuadorian courts.

The new report, “Profiting from injustice,” studies the arbitration system in detail and concludes that both the policymaking of the arbitration process and the decisions in arbitration cases have essentially been captured by an industry that benefits from the increased use, and scope, of investment arbitration. A small club of arbitrators and investment lawyers control the discussion about the arbitration system, encouraging the inclusion of arbitration provisions and broad interpretations of these provisions, and profiting from the explosion of investor-state arbitration in recent years. And, the report charges, these lawyers even generate their own cases, pitching companies with ideas of suing governments.

This is an important, evidence-based criticism of the factors that contribute to abusive arbitration, and it should be useful in demonstrating to policymakers that the arbitration system needs another look.

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