Opinion

Investment Treaties Like FIPA Spin Huge Profits for Lawyers

Canada, for example, is being sued for $250 million and legal teams feast off such wrangling.

By Jamie Biggar and Emma Pullman, 30 Nov 2012, TheTyee.ca

Man in suit

Enter the $1000 dollar an hour investor-state arbitrator: legal and arbitration costs average over US$8 million per dispute.

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Canadians from across the political spectrum have come together to oppose the secretive and extreme Canada-China FIPA investor deal. The FIPA would allow foreign corporations to sue the Canadian government if they believe any level of government has done anything to limit their interests, and the lawsuits would be heard in investor-state arbitrations that function as secret tribunals outside the Canadian court system.

Within Canada, citizen opposition has fueled a media debate that has, in turn, been dominated by people who have an apparent financial stake in the outcome that has not been disclosed to the public.

And now, a new report shows that while other countries like Australia are rejecting investor-state arbitration, this radical form of democratic override is fast becoming a booming industry that is costing taxpayers billions, and challenging government decisions and common sense laws all around the world.

Broad opposition to FIPA


The opposition to the Canada-China FIPA is widespread and growing. Through Leadnow.ca and SumOfUs.org's campaigns alone, over 80,000 Canadians have sent messages opposing the FIPA deal to their MPs and party leaders. This community has written hundreds of letters to the editor and funded radio and print ads to challenge Conservative MPs on their home turf. Nearly 20,000 Canadians wrote statements opposing this FIPA to the Department of Foreign Affairs and International Trade when they asked for public comment on their environmental assessment of the investor deal. Thousands have also spoken out against the Canada-China FIPA through campaigns organized by groups like the Council of Canadians, ForestEthics, Avaaz and the David Suzuki Foundation, and spontaneous protests have been organized around the country. 



From First Nations to conservative pundits, opposition to this FIPA is diverse and strong. First Nations leaders from across the country, such as the BC Union of Indian Chiefs and Chiefs of Ontario, have condemned the binding investor deal because it would break constitutionally enshrined Aboriginal rights and title by granting China's companies special extra-constitutional legal rights that could supercede the ability of First Nations to self-govern their territory. Conservative commentators like Diane Frances have also slammed the Harper Conservatives, writing in the Financial Post that "Ottawa capitulated to China on everything" by negotiating an agreement that will give Canadian investors little protection in China, while granting China’s companies the ability to undermine democratic control in Canada. 



Many expected Prime Minister Harper to pass the Canada-China FIPA on Nov. 1, immediately after a mandatory 21-day waiting period. But the broad-based pressure seems to be having an effect and the treaty is now sitting idle, ready to be ratified at any moment, but with no clear indication of when or if that might happen.

Expert voices in the media


As the days have turned into weeks, a group of FIPA proponents have spread out across Canadian media to laud the benefits of this controversial investor deal and downplay the risks to our democracy and economy while Prime Minister Harper regroups. For Canadians trying to make sense of trade agreements and this FIPA, it is important to understand that there are surprisingly few Canadians with deep expertise on the subject of FIPA agreements and investor-state arbitration, a new and rapidly changing field. Prof. Gus Van Harten is a Canadian expert with international stature who has been sounding the loudest alarm from the beginning. He has never earned income by representing a corporation or working as an arbitrator in an investor state arbitration.

In contrast, in media interviews professor Andrew Newcombe has largely dismissed concerns that the Canada-China FIPA will undermine Canada's democratic control. Prof. Newcombe shares something with many of the FIPA proponents who have been writing op-eds and conducting media interviews over the last few weeks: he has an apparent financial stake in the matter because he has earned income representing corporations in the growing investor-state arbitration industry, and could benefit from that industry's further growth if the Canada-China FIPA is signed. In fact, on his LinkedIn profile, Newcombe lists himself as available for "consulting offers" and "expertise requests" in relation to international arbitration. 



In professor Newcombe's case, he represented (and may still represent) Commerce Corporation in a lawsuit that used the CAFTA investor deal to challenge El Salvador's moratorium on industrial gold mining. Newcombe keeps a website on investment treaty arbitration (italaw.com).*


For an even more prominent example, consider Matthew Kronby and Milos Barutciski, a pair of lawyers who have been advocating the Canada-China FIPA with op-eds in The Globe and Mail and Financial Post. These lawyers are partners at Bennett Jones, a firm that proudly offers its investor-state arbitration services to corporate clients who want to sue governments. 



Prior to Bennett Jones, Kronby was the head of the federal government's Trade Law Bureau. He was the government of Canada's lead lawyer on the controversial CETA trade deal with Europe, and left mid-negotiation to take a job in the private sector. Barutciski used to be a lobbyist for Enbridge, the company hoping to build the Northern Gateway oil pipeline from Alberta's oil sands to Kitimat on the B.C. coast.

Canada sued for $250 million via NAFTA


Barutciski's recent actions, on the other hand, have completely undermined one of the most important arguments put forward by the industry insiders of the benefits of FIPA: that corporate lawsuits heard behind closed doors in the Canada-China FIPA's secret tribunals will not undermine Canada's ability to make common sense laws to protect our environment, create good jobs or stop dangerous projects. Barutciski, on behalf of Bennett Jones, is representing U.S. energy company Lone Pine Resources that has just declared that it will use the investor-state arbitration mechanism in NAFTA to sue the Canadian government for $250 million because Quebec put a moratorium to halt shale gas fracking, including Lone Pine's exploration permits, in order to study the health and safety impacts of the increasingly controversial practice. In doing so, Barutciski has powerfully demonstrated that foreign corporations can use these secretive mechanisms to threaten Canadian taxpayers with massive penalties for prudent democratic decisions, even if those decisions, like Quebec's moratorium on fracking, affected both foreign and Canadian corporations.



Investor-state arbitration lawyers have a right to share their views, and we have a right to know where they're coming from. Just like you'd expect a financial analyst to tell you if they owned the stocks that they were trying to sell you, the legal industry that specializes in this area should declare its interest when they comment publicly on an issue of such mammoth common concern.



The upshot is that while opposition to the Canada-China FIPA has spread rapidly, far too many Canadians, including many Members of Parliament, don't really understand the stakes of the Canada-China investor deal. For example, Conservative MPs have responded to the tens of thousands of emails they are receiving from their constituents with a nearly identical set of talking points, likely crafted in the Prime Minister's Office, that reflect the industry insiders' message. In addition, few politicians and pundits have recognized that this looming FIPA dramatically raises the stakes of the CNOOC-Nexen takeover. If the Harper Conservatives approve the $15 billion takeover, CNOOC will be treated as a Canadian company and be able to buy control over more Canadian resources without having to face another test to see if it is of "net benefit" to Canada. If this FIPA passes, CNOOC will then be able to sue Canadian governments in secret tribunals if those governments do anything to counter its growing interests.

Hurtling down an expensive legal road


A new global system is spinning out of control.



One of the biggest problems with the Canada-China FIPA is that it could lock us into this investor-state arbitration system for 31 years, and we have no way of predicting how this system will develop. How will the arbitrators interpret the interests of corporations and responsibilities of governments? How big will the damages be? How often will the threat of a lawsuit stop legislation before it's put in place? Today, investor arbitration is already becoming a big global business, with huge consequences for taxpayers and democratic control.



According to a new report, "Profiting from injustice: How law firms, arbitrators and financiers are fuelling an investment arbitration boom" by the Corporate Europe Observatory and the Transnational Institute, investor arbitration has boomed in recent years, from 38 cases in 1996 to 450 known cases as of last year. And, these are only the known cases -- there are cases that are not public, but we do not know how many. 



A small group of elite firms with for-profit arbitrators and lawyers are getting rich from these deals. Today, legal and arbitration costs average over US$8 million per dispute -- and sometimes exceed US$30 million. Entire legal teams handle cases with elite law firms charging as much as US$1,000 per hour, per lawyer. Arbitrators also earn hefty salaries: as much as US$1 million per case. 



Taxpayers are paying much of the bill for these law firm profits and the awards they are securing for their corporate clients, and we are talking about big money here. A WTO arbitration panel just ordered Ecuador to pay U.S. oil company Occidental Petroleum $1.7 billion, and one of China's companies, the Ping An Insurance Group, has launched a lawsuit against Belgium for $2 billion. The growing damages are creating an incentive for investor-state arbitration firms to advise their corporate clients to sue governments for ever larger sums -- and the lawsuits are weakening or preventing laws that would put the public good ahead of narrow corporate interests. 



The report maps an inner network of highly influential firms that it alleges are disproportionately involved personally and financially in these cases and arbitration. The report claims many arbitrators play double or triple roles, alleging that these arbitrators act as counsel, as academics, as government advisors, as lobbyists and as media commentators. The report also alleges that some have strong personal and commercial ties to companies. All this gives these firms huge influence over the debate about the investor arbitration system, which they have a vested interest in sustaining.


Historically, the international investor-state arbitration system was justified and put in place by Western governments to protect corporations' investments from perceived bias and corruption within non-Western national courts. But the report argues that the so called "independent" arbitration system is becoming a self-serving multimillion-dollar industry dominated by a narrow exclusive elite of law firms. When you combine this with the track records of the tribunals and their generous interpretation of "corporate rights," it's time to ask serious questions about the industry's commitment to unbiased judgments and the interests of Canadians. 
Now is the time because this system is being extended to the developed world, led by Canada, right now by the Harper Conservatives.


Finally, and perhaps most troubling of all, the report also describes a new trend in the investment arbitration industry: third-party funding. Investment arbitration is becoming so lucrative that investment funds will actually speculate on cases, lending money to companies so they can sue governments -- and then they'll take a cut of 20 per cent to 50 per cent from the final award.

Nations rejecting investor-state arbitration



Countries are starting to rethink and reject investor-state arbitration, and return to settling disputes through national courts and diplomacy. Bolivia, Ecuador and Venezuela have terminated several investment treaties and withdrawn from the World Bank International Center for Settlement of Investment Disputes (ICSID), the main handler for these arbitrations. Argentina refuses to pay arbitration awards. South Africa has just announced that it will neither sign new investment agreements nor renew those that are set to expire.



In April 2011, the Australian government announced it would no longer include investor state dispute settlement provisions in its trade agreements. Specifically, it said it will not negotiate treaty protections "that would confer greater legal rights on foreign businesses than those available to domestic businesses" or that "constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses." The Australian Productivity Commission completed a report on investor arbitration that found no compelling economic rationale for including investor-state arbitration mechanisms in its trade and investment agreements, and found few clear benefits along with several worrying risks associated with investor arbitration.



Barring constitutional challenges, if Prime Minister Harper signs the Canada-China FIPA investor agreement he will lock Canada into an investor-state arbitration system that seems to be growing increasingly self-serving -- a network of firms that would have a significant financial interest to court Beijing's business by delivering results for them. We are being told that this is a good idea by people who may have a financial interest in the outcome, and their views are being repeated by Conservative MPs who are simply repeating talking points sent to them by Ottawa. 



The Harper Conservatives are changing the structure of the country without public debate and with a backwards view that ignores the lessons learned by other countries. Just as they expanded mandatory minimum prisons sentences despite Texan Republicans telling them that their "fill-the-prisons" approach to justice had utterly failed in Texas, they are moving Canada towards even more secretive and extreme investor deals. Australia, India, South Africa are all moving to protect their right to make domestic policy by rejecting investor-state arbitration. But in Canada the goal is to lock in Prime Minister Harper's vision for the country as a mass exporter of raw resources. It's hard to get rid of prisons once they're built, and it's hard to get rid of pipelines once they've been rammed through with the threat of secretive billion dollar lawsuits. 



You can't lead a country by keeping it divided and in the dark, and in the cross-partisan opposition to the Canada-China FIPA and CNOOC-Nexen takeover we are seeing fertile soil for a broad rejection of their stealthy agenda.

*Story corrected Dec. 4, 2012 at 4:15 p.m.  [Tyee]

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