Weapons of Legal Destruction: ISDS lawsuits and Lydian International’s Assault on Armenian Sovereignty

23 September by Armen Abagyan


See “More Precious Than Gold: community resistance v corporate courts” available at: https://www.youtube.com/watch?v=112qdK9Dees (Global Justice Now)

Over 3,300 investment agreements have been drawn up since the 1960’s. [1] This byzantine nexus of Bilateral Investment Treaties (BITs) safeguard the global Foreign Direct Investment (FDI) apparatus encompassing a 20 trillion dollar flow of capital, and more importantly, provide the institutional framework that promotes the economic interests of transnational corporations worldwide. [2] Behind closed doors and largely shielded from the public eye, provisions in international investment treaties have armed multinationals with a dangerous corporate rights regime that grants sweeping powers to investors. The most insidious of them all — the power to sue governments in private international arbitration tribunals over any changes in state policy or regulation that adversely affect company revenues. In neoliberalism’s ever accelerating race to the bottom that pits corporate profit against human rights and the environment, corporate profit usually wins out.

Exploiting the investor-state dispute settlement (ISDS) mechanism embedded in Armenia’s BITs with the UK and Canada, subsidiaries of “Lydian International” —“Lydian UK” and “Lydian Canada”— have formally submitted their claim against the Armenian government following the ongoing road blockages and re-galvanized popular resistance against the Amulsar gold mine. Surrounding Armenian communities are already reeling from the mine’s environmental effects, and if it were to become fully operational, the social, economic and public health ramifications could be calamitous.

While Prime Minister Nikol Pashinyan continues to woo European foreign investors with an “open door” tax policy and plans for further government deregulation, Armenian civil society finds itself ensnared in a battle over resource rights with the shareholders of Lydian International. In the clandestine arbitration courts outside the jurisdiction of Armenian law, 2 billion dollars [3] are on the line in the impending case of Lydian International v. Armenia. If the British multinational prevails, the Armenian people, 26 percent of whom live below the official poverty line, would be footing the bill. [4] For the grassroots movement to triumph, it is imperative to demystify the ISDS mechanism and the duplicitous promises of trade and investment agreements.

 The Trojan Horse of Bilateral Investment Treaties

The signing of a treaty between a government and a foreign investor involves a unilateral loss of sovereignty on the part of the host state, which is ultimately deemed necessary to attract foreign capital.

The rationale for this concession is rooted in the development narrative touted by the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
that large-scale FDI is the one-size-fits-all remedy for the national economic development of the global south. Under the “export-led growth” paradigm, peripheral states are coerced into prioritizing raw materials for export to the centre, with firms from the centre providing the technology and capital required for extraction. In recipient states’ “integration into the global value chain", multinationals are granted unhindered access to the oil fields, forests, agricultural lands, fresh water sources, mining deposits and other natural resources of the periphery. The environment as a result is reduced to nothing more than mere commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. to be bought and sold in global markets, and European and North American companies are making the lion’s share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of the profits.

States competing to attract FDI are therefore compelled to bow to the global investment regime supplying investors with the legal environment best suited to their economic interests. This entails a curtailment of public control over transnational capital through a slew of free market reforms and bestowing extensive advantages to investors in a growing web of BITs and other investment agreements. There is little empirical evidence substantiating the widely held belief that BITs actually stimulate FDI, [5] nor are investment treaties an essential precondition to secure investment. Japan has only signed four BITs and is the second largest recipient of FDI globally. American investment flows into China have amounted to $276 billion since 1990, and the two states do not hold any BIT. [6] Brazil does not possess any ratified BITs and is a significant destination for foreign investment. [7]

Albeit not a guaranteed precursor to increased investment flows, treaties nonetheless play a fundamental role in enabling investors to extract enormous profits in the Global South, and more importantly, their provisions allow transnational corporations to easily sue host states if they act in the collective interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. of their citizens.

 Signing away sovereignty: What countries agree to when signing an investment treaty

1. “Fair and equitable treatment” (FET) for investors

The “Fair and equitable treatment” (FET) clause is a “very broad clause that aims at protecting the foreign investor against any treatment that could affect in any form its activity and economic interests and which could be considered unfair”. [8] The interpretation of this provision often used by investors to sue governments is one where the host state cannot unilaterally enact policy changes that foster “economic prejudice” for the investment. For example, when a government implements anti-smoking measures in the form of graphic public health warnings on tobacco product packaging, big tobacco companies can claim that such state actions have upset their “legitimate expectations” for stable and favorable conditions of business (as was the case in Phillip Morris v. Uruguay). [9] The catch-all and deliberately obscure nature of this provision tends to discourage policy makers from pushing through legislation that is in the public interest in fear of violating the FET clause in investment treaties.


2. Free mobility of capital by investors

This provision prohibits governments from applying any restrictions on capital flows, meaning that investors can pull out their investment-related capital at any moment. Capital controls are a legitimate and essential monetary policy tool that governments use to regulate the domestic economy. Despite even the IMF’s recognition of their importance in times of financial crisis and macroeconomic volatility, [10] host states are forced to forfeit the ability to implement capital controls.


3. Most Favored Nation regime for investors

The Most Favored Nation (MFN) provision orders that states extend treatment to investors no less favorable than that of other investors under other investment treaties. This results in multinationals setting up subsidiaries / shell companies in countries that have BITs with the greatest investor protections, permitting investors to “treaty shop” when they want to sue governments. The Dutch bilateral investment network for example is one of the most extensive in the world, and many multinationals set up shop in the Netherlands to make use of its favorable ISDS provisions in Dutch BITs with other countries. The majority of the 50 ISDS cases filed by “Dutch” investors were actually foreign subsidiaries invoking the Most Favored Nation provision. [11]


4. Investor protection against “direct and indirect expropriation"

The investor is protected from “direct and indirect expropriation” by the host state. Although “direct expropriation” is generally clearly defined (i.e. seizure of a foreign investor’s property or assets through nationalization), “indirect expropriation” is problematically vague. Any policy initiative, regulation, or action that negatively impacts future expected profits (such as requirements for environmental impact assessments, regulations on hazardous waste, bans on harmful chemicals etc.) can be deemed “indirect expropriation”. Given the comprehensive language of this investor protection, legislation that safeguards public welfare become grounds for multinationals to sue host states.


5. Investor rights to “just or equitable compensation"

Investors are entitled to demand compensation if they are subject to “direct or indirect” expropriation of future expected profits. This provision also allows investors to estimate the compensation based on the “market value” of the assets that were expropriated which tends to amount to substantial financial awards. Canadian mining company Gabriel Resources for instance is claiming $5.7 billion in damages after the Romanian government refused to grant the required exploration permits despite having invested only $650 million in the Roşia Montană mine. [12] This right is afforded exclusively to foreign investors as national investors are subjected to less than market value estimations.


6. National Treatment of Foreign Investors

Rights and privileges for national investors must be equally extended to foreign investors. Furthermore, no economic development strategy can include policy measures such as incentives and tax exemptions that boost state enterprise and crowd out foreign investors. Most successful economies in the world have at one point employed such national development policies that prioritize local industry, but under this provision that right is stripped away from host states. Local companies in effect, are thrust into competition with transnational monoliths against untenable odds.


7. States must accept binding investment arbitration

This clause endows investors with international legal protection in the form of ISDS, where often investors have the choice of venue for investment arbitration. What this means is that investors can bypass local courts and seek recourse in private international arbitration tribunals (such as the International Center for the Settlement of Investment Disputes (ICSID ICSID The International Centre for the Settlement of Investment Disputes (ICSID) is a World Bank arbitration mechanism for resolving disputes that may arise between States and foreign investors. It was established in 1965 when the Washington Convention of that year entered into force.

Contrary to some opinions defending the fact that ICSID mechanism has been widely accepted in the American hemisphere, many States in the region continue to keep their distance: Canada, Cuba, Mexico and Dominican Republic are not party to the Convention. In the case of Mexico, this attitude is rated by specialists as “wise and rebellious”. We must also recall that the following Caribbean States remain outside the ICSID jurisdiction: Antigua and Barbuda, Belize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not ratified (or even signed) the ICSID convention and the 6th most powerful world economy seems to show no special interest in doing so.

In the case of Costa Rica, access to ICSID system is extremely interesting: Costa Rica signed the ICSID Convention in September, 1981 but didn’t ratify it until 12 years later, in 1993. We read in a memorandum of GCAB (Global Committee of Argentina Bondholders) that Costa Rica`s decision resulted from direct United States pressure due to the Santa Elena expropriation case, which was decided in 2000 :
"In the 1990s, following the expropriation of property owned allegedly by an American investor, Costa Rica refused to submit the dispute to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID proceedings, and the American investor ultimately recovered U.S. $ 16 million”.

https://icsid.worldbank.org/apps/ICSIDWEB/Pages/default.aspx
)), which are overwhelmingly partial towards corporate interests. The decisions in these cases have little to do with legal precedent or international law, but are nonetheless binding and more importantly enforceable. [13]

Governments in the Global South time and time again are opening their gates to the Trojan horse of bilateral investment, accepting the fictitious narrative that providing investors with the supranational powers will prelude increased investment inflows and that this is worth the trade off. However, transnational firms are anything but the foreign benefactors bringing much needed jobs and prosperity to struggling economies. They are the new face of colonialism, subjecting peripheral states to perpetual underdevelopment and rendering them reservoirs of cheap labor and raw materials ripe for plunder. The legal instruments at the disposal of foreign investors in BITs only cement the periphery’s economic subjugation to large-scale foreign capital.

The Permanent Court of Arbitration (PCA) in The Hague, The London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC) in Paris, the Stockholm Chamber of Commerce (SCC), the United Nations Commission on International Trade Law (UNCITRAL) and the ICSID are all venues for investor-state disputes.

Each arbitration forum is governed by its own set of rules and regulations, although in certain cases the rules from one tribunal can be applied to another administering institution (i.e. UNCITRAL rules can be solicited at the ICSID). Investment treaties contain clauses in their ISDS provisions designating which venues/ arbitration rules are admissible for investor-state disputes. While domestic courts of the host state are largely expressly prohibited, forums outside the jurisdiction of local sovereignty are widely available to multinationals seeking dizzying sums in compensation. [14] The greater part of known cases, nearly 75%, have been filed at the ICSID in Washington DC. [15] [16]

 The ICSID

The ICSID, the de facto judicial arm of the World Bank, was founded primarily in response to the “resource nationalism” movement during the decolonization era. In the 1950s and 1960s, newly created and independent states in the global south began nationalizing the property of foreign investors within their jurisdiction. Land, natural resources, and key infrastructure previously under the control of multinationals were converted into public assets and host states sought to change the terms on which resources were extracted with the intent of bringing more tangible benefits to their citizens. Exploration permits as well as mining/oil concessions were suspended, and stringent regulatory policies were put in place. It was this blow to transnational capital that precipitated the need for foreign investors to reclaim lost ground.  [17]

In the 1964 World bank Forum dubbed the “El No de Tokyo”, 21 governments in the Global South voted against the creation of the ICSID. Despite initial resistance, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States went to work collecting state signatures until the ICSID came into fruition in 1966. [18] The distrust of the ICSID originally demonstrated by governments in the Global South decades ago has lived on in concrete state action. Bolivia, Ecuador, and Venezuela, all states that were part of the “El No de Tokyo” vote, have left the ICSID. South Africa is establishing a new investment law that restricts investor-state disputes to domestic courts. India is currently evaluating its investment treaties and Indonesia has announced its intent not to renew its bilateral investment treaties. Brazil has abstained from the investor-state dispute mechanism altogether and Australia has refused such sweeping investor rights for American companies in the Australia-United States investment treaty signed in 2005. [19]

Several features of the ICSID make it an investor favorite for arbitration. Under UNCITRAL rules, financial awards are non-binding if they have “been set aside or suspended by a court of the country or the recognition or enforcement would be contrary to the public policy of the State” (art 36 (1v)). The ICSID affords no such considerations with respect to the tribunal’s authority and the public policy of the host state, making its rulings final with no appeal process. [20] “Courts shall treat the award as if it were a final judgement of the courts of a constituent state”. [21] Additionally, arbitration claims filed at the ICSID do not require the “exhaustion of local remedies” as a precondition for admissibility, [22] which would otherwise oblige foreign investors to redress the alleged treaty violation through the administrative and judicial system of the host state before taking the matter to an international arbitration court. The ICSID’s admission of ISDS claims without the exhaustion of local remedies allows investors to bypass domestic sovereignty and fast track to investor-friendly arbitration tribunals where they are more likely to receive a favorable ruling. [23] The ICSID convention also demands its panelists “exercise independent judgement”. [24] In practice, arbitrators who have served as the legal council for foreign investors and then as ICSID arbitrator in a subsequent dispute involving the same investor clients are not disqualified at the ICSID, despite the flagrant conflict of interest. [25]

Over the past 20 years, provisions in investment treaties have prompted a surge in investor claims against states. In 1996, 38 investor-state disputes were filed at the ICSID. By December of 2018 there were 706; [26] though the actual number of cases is likely to be significantly higher due to the confidentiality of most arbitration forums. This meteoric rise is reflective not only of the further encroachment of foreign capital into the periphery thanks to surreptitious clauses in investment treaties, but also the tantalizing compensatory awards at stake for foreign firms in arbitration tribunals.

 Mechanism of an international investment dispute

1: Foreign investor sends notice of arbitration

2: Investor and state jointly select arbitration tribunal

Most arbitration panels are composed of three individuals. Both the state and the investor pick one arbitrator each (corporate lawyers who judge and preside over the dispute), and then jointly appoint a third to serve as chairman. In certain cases, a previously designated “third party" such as the World Bank or the International Chamber of Commerce (institutions with a staunchly neoliberal pro-corporate agenda) select the arbitrators.

3: Legal proceedings

Investor-state disputes can last for years and legal proceedings are shrouded in secrecy with little information made available to the public, who are often unaware that the case is even ongoing. This is especially paradoxical since the binding compensatory awards in question would be financed with public taxpayer money.

4: Arbitrators make a decision

The tribunal determines whether compensation is to be granted to the investor as well as the type and size of financial compensation. Governments have scant opportunities to dispute the nature of the arbitral award and furthermore the ruling itself once the arbitrators have passed judgement.

5: Arbitral awards

Host states must respect the tribunal’s ultimate verdict. If a government fails to comply with the arbitral awards (which on average are $522 million), [27] state-owned foreign assets will be seized elsewhere in the world. This is possible through the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards” also known as the “New York Convention”, which is a longstanding agreement (to which nearly all countries are privy) mandating states use their national courts to enforce arbitration awards. [28] Dayanni Group made use of the “New York Convention” to seize South Korean assets in the Netherlands after the government refused to pay a $60 million compensatory award to the Iranian investor. Dutch courts have ordered South Korean companies operating in the Netherlands not to pay their debts to the South Korean government, which would deprive state coiffeurs of millions. [29]

The investment arbitration mechanism is one-sided; foreign investors are given extensive rights and privileges without bearing any responsibilities. Whereas only investors can initiate a dispute and seek compensation, the host state cannot issue a complaint against the investor at the same tribunal. In the best case scenario, a favorable ruling will not require the host state to pay an arbitral award to the investor, although governments often still have to cover the hefty costs of litigation. The perverse logic of the ISDS system is such that a state attempting to protect a key watershed from the ravages of hydraulic fracturing is penalized with investor-led lawsuits rather than rewarded for damages resulting from the pernicious activities of multinational corporations.

Human rights and public policy considerations are frequently viewed as “outside the scope” of investment arbitration, and ISDS claims are primarily treated as commercial disputes. International investment treaties contain sources of law for the tribunal to apply in arbitration cases, including the BIT itself, the domestic law of the host state, and “principles of international law”, with the BIT being of cardinal importance. [30] [It bears emphasizing that investment agreements are in essence commercial contracts signed between two states granting supranational privileges and protections for investments by investors of one state in another state, and this contract is elevated to the stratum of international law.] When arbitration panelists are presented with an ISDS claim their parochial concern is whether or not the host state has violated the terms of the treaty, which contain little to no language regarding human rights or the environment. A 2014 OECD OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/
study found that only 0.5% of a sample of 2,2017 investment treaties feature human rights considerations, while 10% contain references to environmental protection and only 5% mention labor conditions and standards. [31]

“Principles of international law” as they are applied in arbitration tribunals, bafflingly enough, tend to narrowly reference the investor protections outlined in BITs. In the case of Von Pezold v. Zimbabwe, third parties petitioned for the application of indigenous rights, which they contended were pertinent by way of the Germany-Zimbabwe BIT reference to “international law”. The arbitrators rejected the appeal, declaring that the “rules of general international law as may be applicable does not incorporate the entire universe of international law such as international human rights law on indigenous peoples” — only the international law relevant to the BIT, such as international law standards for “fair and equitable treatment”. [32] The legal legitimacy of investment arbitration is spurious at best. UN universal human rights conventions and international environmental protection agreements are ultimately subservient to the corporate rights regime of foreign investors. The insatiable pursuit of profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. and corporate crimes committed by transnational capital, in effect, are above the law.

The lawsuit involving Canadian mining company Gold Reserve Inc. and Venezuela is emblematic of the supremacy of investor rights in investor-state disputes. Gold Reserve Inc. filed a claim seeking compensation for financial losses after the Venezuelan government revoked authorization for Gold Reserve Inc. to proceed with the construction of a gold mine in the Imataca Forest Reserve. The rationale behind the revocation cited the irreparable damages done by previous mining activity to nearby populations, indigenous communities as well as the “serious environmental deterioration of the rivers, soil, flora, fauna, and biodiversity in general”. [33] The ICSID tribunal ruled in favor of Gold Reserve Inc. and ordered the Venezuelan government to pay the multinational an arbitral award of $760 million, [34] asserting that “The Tribunal acknowledges that a State has a responsibility to preserve the environment and protect local populations living in the area where mining activities are conducted. However, this responsibility does not exempt a State from complying with its commitments to international investors”. [35] Venezuela, as previously mentioned, has since withdrawn from the ICSID.

 Secret Corporate Courts

The clandestine character of the arbitration process has long been a flashpoint in the ISDS debate. The lack of transparency in investor-state disputes has drawn fierce criticism from academics, NGOs, public interest groups, and civil society. In an effort to preserve the reputation of the investment arbitration system, proponents of the global investment regime have hailed the recent amendments in UNCITRAL arbitration rules as a move towards greater transparency, but this is nothing more than a false flag.

The 2014 UNCITRAL rules on Transparency establish formerly non-existent transparency standards, requiring disclosure of the basic information of the dispute and of relevant documents, allowing for written submissions to the tribunal by amicus curiae, and making tribunal hearings open to the public. This all appears good in theory, but there are numerous caveats. Only investment treaties drawn up after April 1st, 2014 and opting for the UNCITRAL Arbitration Rules will automatically apply the transparency rules in arising disputes. Investors on average only select UNCITRAL arbitration rules in 30-35% of disputes, which means that the remaining approximately 70% of ISDS cases are not subjected to UNCITRAL transparency standards. Furthermore, for the 2,600 investment treaties concluded before April 1st, 2014, [36] signatory states must ratify an additional convention (the Mauritius Convention) to enter the UNCITRAL Transparency Rules into force. Since the Mauritius Convention gives investors the freedom not to opt in for the 2014 amendments, this leaves a substantial majority of investment treaties outside the scope of UNCITRAL Transparency Rules. Furthermore, in the rare likelihood that UNCITRAL transparency standards actually are imposed on an arbitration case, there are also numerous exceptions to their application. Article 7 of the UNCITRAL Transparency Rules authorizes tribunals not to disclose “confidential business information”, as well as protect information that, if made public, could have the effect of jeopardizing “essential security interests” of the disputing parties and the “integrity of the arbitral process.” The deliberately vague wording of Article 7 confers to investors the ability to invoke broad interpretations of what aspects of arbitral proceedings can be deemed eligible for confidentiality. [37] If for example public protests arise in response to a mining company’s use of cyanide in open pit mining exposing surrounding populations to grave public health risks, the tribunal could rule that such demonstrations threaten the “procedural integrity” of the arbitral process as well as the “essential security interests” of the investor and thus place a gag order on public hearings. Taking into account the numerous loopholes available to investors, the UNCITRAL reforms reveal themselves to be hollow and inconsequential.

Unlike UNCITRAL, the ICSID has not even done ISDS sceptics the courtesy of undertaking any sort of transparency reforms. The ICSID convention and arbitration rules “do not contain any presumption of confidentiality or transparency”, and instead transparency is subject to party consent. [38] ICSID Tribunals are only authorized to publish “excerpts of legal reasoning”, as well as the registration of requests for arbitration, conciliation and post award remedies for registered cases. Even the publication of arbitral awards is not compulsory and is conditioned on the consent of both disputing parties. [39] It is self evident that the investors consent is unlikely when the disputes concern issues of public interest such as public health, labor conditions, food security, the environment, and access to safe drinking water. Keeping arbitral proceedings out of the public domain stifles the inclusion of civil society and effectively prevents the mobilization of non-state actors against multinationals suing states for extortion level financial awards. Consequently, investor-state disputes in most cases can continue operating in the dark shielded from public scrutiny as they rob populations of billions in taxpayer money.


Amicus Curiae Submissions: Inclusivity of “third parties”

A recent development in investment arbitration has been the inclusion of third party amicus curiae (“friends of the court”) briefings from NGOs and civil society groups to address human rights and environmental concerns. The acceptance of such submissions in arbitration tribunals is relatively new with the first admitted submission at the ICSID only taking place in 2005. While amicus curiae briefs have offered a space for parties who would be affected by the outcome of the case to present legal arguments before presiding arbitrators, in practice their impact has been limited at best. Tribunals rarely explicitly refer to third-party submissions in their rulings and amicus curiae arguments that support the application of international human rights law are snubbed by arbitrators given their narrow investor rights-focused interpretation of international law. [40] The ICSID and UNCITRAL amendments regarding the incorporation of amicus curiae submissions do little more than to project a veneer of inclusivity of the public in investor-state disputes and certainly do not lend legitimacy to the arbitration process.

 Arbitration rulings: beyond the statistics

Defenders of the ISDS system will often point to arbitration outcomes to insist that governments fair quite well in investor-state disputes in a futile attempt to purport its supposed “fairness”. According to the official statistics, 35% of cases have been ruled in favor of the state, 29% in favor of the investor, and 23% were settled with the rest discontinued or ruled in favor of neither party (liability found but no damages awarded). [41] These figures are intentionally misleading and do not convey the extent to which arbitration is auspicious for foreign investors. Of the cases resolved in favor of the state, half were dismissed on technical grounds. Considering the ISDS claims where there was an actual decision on the “merits” of the case, 61% were decided in favor of the investor and 39% in favor of the state. [42] It’s clear that when an investment dispute reaches a tribunal, investors are significantly more likely to receive a favorable ruling.

The settlements comprising 23% of arbitration outcomes are in no way a victory for the state as they often entail concessions to the investor. Poland for example has spent more than $4 billion in settlements to avoid litigation, while Argentina and Venezuela have paid out $2.3 billion and $6 billion respectively. Because only some settlements between host states and foreign investors are disclosed publicly, estimates are likely to be significantly higher. [43] Like the arbitral awards granted to investors in investor-state disputes, the financial settlements paid out to investors deviate substantial public resources from state budgets needed for crucial social investment. The details surrounding settlements on the other hand are cloaked in even more secrecy than those of already furtive arbitration tribunals.

Concessions to the investor are not always financial. In Germany’s settlement of its first dispute with Swedish energy conglomerate Vattenfall, the German government scaled back environmental restrictions imposed on one of Vattenfall’s coal fired plants after the multinational filed an $1.9 billion ISDS claim at the ICSID. [44] The government’s decision to water down environmental protection measures rather than allow the dispute to reach the ICSID is telling of the perceived and real pro-investor bias of tribunals. Frequently even the mere threat of an investor-state dispute is enough to bully host states into submission. Indonesia, for instance, lifted a ban on open-pit mining in protected forests following subsequent threats of $20-30 billion arbitration claims from foreign investors. Tobacco multinationals threatened the Canadian government with lawsuits in 1994 and 2001 when it sought to implement changes to cigarette packaging and labelling. This was sufficient to coerce the federal government to withdraw its public policy proposals. [45] As long as investors can intimate host states with multi-billion dollar ISDS claims when their (future) profits are affected, there is always the risk that policy makers will back down from critical public interest reforms. The chilling effect on government regulation is arguably the primary function of international investment arbitration.

 Arbitrators: neutral guardians of the investment arbitration system?

Arbitrators who ultimately decide the fate of investor-state disputes are no impartial guardians of international investment law. They are highly paid corporate lawyers who have a vested interest in the preservation of the investment arbitration industry and are unaccountable to any electorate. Contrary to judges, arbitrators have no limit on financial remuneration and are not restricted to a flat salary for their services. In fact, making it to the arbitration panel of an investor-state dispute is highly sought after precisely because they earn so handsomely. In a $100 million dispute a presiding arbitrator can earn on average up to $350,000, and commonly investor claims against states involve much larger financial awards. [46]

Not only do their livelihood and career depend on the ability of foreign investors to sue states, but they are also unwaveringly pro-business in their outlook with strong ties to the corporate world. Many have served as board members of transnational corporations and often at the very same companies suing governments in arbitration courts and share the view that the protection of FDI profits is non-negotiable in their rulings. The proportion of arbitrators from Western Europe/ North America for all cases held at the ICSID is 68%. [47] Furthermore, tremendous decision making power is concentrated in the hands of an “inner mafia” made up of 13 arbitrators (of whom all but one are from Europe/ North America) who have sat in on nearly 80% of known ICSID cases. [48] Considering that only 12% of cases at the ICSID involve a respondent state from the Global North we can only wonder how impartial arbitrator rulings really are. [49] An empirical 2012 study in fact reveals a systemic pro-investor bias of arbitrators in ICSID tribunals in which arbitrators not only typically favor the position of claimants, they also rule more favorably if the claimant is from a Western capital-exporting state. [50] The homogeneity of ICSID arbitrators, who are in most cases nominated from a predetermined list of panelists and possess an inherent pro-investor and pro-Western bias, invariably discredits the alleged neutrality of the arbitration system.

In addition to the arbitral award should the investor succeed, investment arbitration itself proves very costly for governments. Not only do the host state and the investor often share the administrative costs; they have to pay the arbitrators as well as their respective legal counsel. According to the Organization for Economic Co-operation and Development (OECD) the legal and arbitration costs on average amount to over $8 million and often surpass $30 million in many investor-state disputes. In the case of the German airport operator Fraport v. the Philippines, the government spent $58 million in legal fees alone — which, to put things in perspective, is equivalent to roughly ⅓ of Armenia’s annual healthcare budget, the salaries of 19,333 Armenian nurses, and more than 2 times the education budget. [51] Industry insiders estimate that about 80% of all arbitration-related costs go to the legal teams in investor-state disputes. The top investment arbitration firms, predominantly from the US, UK, and Canada, gross hundreds of millions to billions of dollars in annual revenues and are by far the biggest winners in the arbitration industry. [52] British firm Freshfields Bruckhaus Deringer for instance racked up 1.8 billion dollars in 2018. [53]

 The Looming Case of Lydian International v. Republic of Armenia

It appears that the Pashinyan administration has capitulated to the $2 billion arbitration threat from Lydian International and authorized operations at the hazardous Amulsar gold mine to continue. Official government rhetoric has always maintained that the go ahead was conditioned on the results of an independent environmental impact report (which was published back in August and allegedly clears Lydian of any criminal charges). However, it is certainly reasonable to question the legitimacy of the investigation itself as well as its conclusions. Not only do they contradict the numerous warnings from environmental scientists against the mine’s unavoidable acidic drainage into Armenia’s largest freshwater reserve, Lake Sevan, but they also negate the tangible repercussions already felt by surrounding communities. The public audit nonetheless serves as a convenient pretext for the government to gesture a concern for human rights and environmental protection while at the same time acquiescing to investor demands.

Even though Pashinyan has sided with the shareholders of Lydian, the Armenian people have not. The heroic efforts of native communities and local activists to blockade access to the Amulsar mine show no sign of abating, and this makes the impending case of Lydian International v. Republic of Armenia all the more probable. Lydian’s legal team will argue that the Pashinyan administration’s inaction with regards to the Amulsar mine blockade constitutes a breach in both UK and Canada BIT’s FET clause and furthermore has led to the “indirect expropriation” of the investment. The grossly overestimated $2 billion arbitral award would make up a staggering 17% of Armenia’s annual GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
and 63% of yearly state expenditures, [54] and the prospects of a ruling in favor of the Armenian government do not look promising if the investor-state dispute proceeds to an arbitration tribunal. The UK-Armenia BIT designates the ICSID as the sole venue for arbitration where there are no enforceable transparency standards, decisions are binding with no appeal process and arbitration rules are unethically lenient towards panelists possessing a conflict of interest. Furthermore, in tandem with the far-reaching investor protections prescribed to Lydian’s shareholders, the UK-Armenia BIT contains no language regarding public health, the environment, labor standards and the state’s “right to regulate” in the public interest. [55] Since the tribunal’s jurisdiction is mostly defined by the contents of the respective investment treaty, it will be difficult to establish any liability on the part of Lydian. This, of course, notwithstanding Lydian’s unambiguous attempt to prevent the government from regulating in the public interest through onerous arbitration threats and the incontrovertible social, public health, and environmental costs the Amulsar gold mine poses to Armenia’s citizens. Moreover, the ISDS system lacks any substantive and procedural law that would entitle the victims of Lydian’s destructive mining activities access to any form of restorative justice. Deferring to the arbitration process in hopes of a just outcome would be, to say the least, unwise.

The struggle for Amulsar must go hand in hand with the struggle against the shadow-legal system that formally prioritizes corporate profits over state sovereignty. The countless investment treaties Armenia has signed with foreign governments have shored up a nefarious investor rights regime that Lydian International is now using to hold Armenia’s main water supply as well as the livelihoods of thousands of Jermuk residents hostage. The legacy of the Velvet revolution and Armenia’s right to self-determination now hang in the balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. .

“More Precious Than Gold” is a short documentary film about the Amulsar gold mine and the impending lawsuit against Armenia, produced by Global Justice Now and War On Want. You can watch the film as well as send a petition to Lydian International here.



Footnotes

[1Knottnerus, R., van Os, R., Verbeek, B., Dragstra, F. Bersch, F. (2018) ‘50 Jaar ISDS : Eenmondiaal machtsmiddel multinationals voor gecreëerd en groot gemaakt door’ Transnational Institute, Both Ends, SOMO, Milieu Defensie Nederland

[2Vervest, P. and Feodoroff, T. (2015) ‘Licensed to Grab : How international investment rules undermine agrarian justice’ Transnational Institute

[3Angel, J. (2019) ‘A Jersey mining company’s $2 billion attack on Armenia’s democracy’, Global Justice NOW https://www.globaljustice.org.uk/blog/2019/jul/30/jersey-mining-companys-2-billion-attack-armenias-democracy

[4Hergnyan, S. (2017) ‘Official 2017 Poverty Rate Pegged at 25.7%’ hetq https://hetq.am/en/article/98630

[5Jacobs, M. (2018) ‘Do Bilateral Investment treaties Attract Foreign Direct Investment to Developing countries? A review of the Empirical Literature’ International Relations and Diplomacy Vol. 5, No. 10, 583-593

[7Singh, K. and Ilge, B. (2016) ‘RETHINKING BILATERAL INVESTMENT TREATIES: Critical Issues and Policy choices’ Both Ends, SOMO, MADHYAM

[8Gonzales, M. (2016)‘Investors versus people: the public nature of international Investment Law’ University of London

[9Porterfield, M. and Byrnes, C. (2011) ‘Philip Morris v. Uruguay: Will Investor-State Arbitration Send Restriction on Tobacco Marketing up in Smoke?’ International Institute for Sustainable Development

[10Beattie, A. (2012) ‘IMF drops opposition to capital controls’ Financial Times.
https://www.ft.com/content/e620482e-3d5c-11e2-9e13-00144feabdc0

[11Van Os, R. and Knottnerus, R. (2011) ‘Dutch Bilateral Investment Treaties: A gateway to “treaty shopping” for investment protection by multinational companies’ SOMO

[12Verheecke, L., Eberhardt, P., Olivet, C., Cossar-Gilbert, S. (2019) ‘Red Carpet Courts : 10 STORIES OF HOW THE RICH AND POWERFUL HIJACKED JUSTICE’ Friends of the Earth Europe and International, Transnational Institute, Corporate Europe Observatory

[13(2015) ‘Licensed to Grab: How international investment rules undermine agrarian justice’

[14International Investment Agreements Navigator, Investment Policy Hub https://investmentpolicy.unctad.org/international-investment-agreements

[15Investment Dispute Settlement Navigator, Investment Policy Hub https://investmentpolicy.unctad.org/investment-dispute-settlement

[16(2019) ‘ICSID Caseload — Statistics: (Issue 2019-1)’ International Center for Settlement of Investment Disputes, World Bank Group

[17Samples, TR. (2019) ‘Winning and Losing in Investor-State Dispute Settlement’ American Business Law Journal

[18Parra, A. (2012) ‘The History of ICSID’ Oxford: Oxford University Press

[19Broad, R. (2015) ‘CORPORATE BIAS IN THE WORLD BANK GROUP’S
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES: A CASE STUDY OF A GLOBAL MINING CORPORATION SUING EL SALVADOR’ University of Pennsylvania Journal of International Law

[20ICSID Conventions and Rules, Article 53

[21ICSID Conventions and Rules, Article 54

[22ICSID Conventions and Rules, Article 25

[23Branch, MD. (2017) ‘Exhaustion of Local Remedies in International Law’ International Institute for Sustainable Development

[24ICSID Convention and Rules, Article 14

[25Schacherer, S. (2018) ‘Independence and Impartiality of Arbitrators :A Rule of Law Analysis’ International Investment Law and the Rule of Law

[26(2018) ‘ICSID Caseload — Statistics: (Issue 2018-2)’ International Center for Settlement of Investment Disputes, World Bank Group

[27(2017) ‘Special Update on Investor-State Dispute Settlement: Facts And Figures’ UNCTAD

[28Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

[29Suk-yee, J. (2019) ‘South Korean Government’s assets about to be seized’ ISDS PLATFORM
https://isds.bilaterals.org/?south-korea-gov-assets

[30Baltag, C. (2018) ‘Human Rights and Environmental Disputes in Investment Arbitration’ http://arbitrationblog.kluwerarbitration.com/2018/07/24/human-rights-and-environmental-disputes-in-international-arbitration/

[31Gordon, K., Pohl, J. and Bouchard, M (2014) ‘Investment Treaty Law, Sustainable Development and Responsible Business Conduct: A Fact Finding Survey’, OECD Working Papers on International Investment.

[32Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Procedural Order No. 2 of 26 June 2012, paras 39, 57

[33Nadakavukaren Schefer, K. (2013) ‘International Investment Law: Text, Cases and Materials Second Edition’

[34Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1 https://www.italaw.com/cases/2727

[35Olivet, C. (2016) ‘Signing away sovereignty: How investment agreements threaten the regulation of the mining industry in the Philipines’ Transnational Institute

[36ISDS navigator

[37Zucchermaglio, S. (2015) ‘The UNCITRAL Rules on Transparency in Investor-State Arbitration: a Critical Perspective’

[38‘Confidentiality and Transparncy- ICSID Convention and Arbitration’ International Centre for Settlement of Investment Disputes, World Bank Group https://icsid.worldbank.org/en/Pages/process/Confidentiality-and-Transparency.aspx

[39Yu, H.L., (2018) ‘Who Is In? Who Is Out? How the UNCITRAL Transparency Rules Can Influence the Upcoming Amendments of the ICSID Arbitration Rules’ Contemporary Asia Arbitration Journal

[40Butler, N. (2019) ‘Non-Disputing Party Participation in ICSID Disputes: Faux Amici?’ Netherlands International Law Review

[41ISDS navigator

[42(2018) ‘World Investment Report 2018: Investment and New Industries’ UNCTAD

[43(2019) ‘Winning and Losing in Investor-State Dispute Settlement’

[44Eberhardt, P. and Olivet, C. (2012) ‘Profiting from Injustice: How Law firms, Arbitrators and Financiers are Fueling an Investment Arbitration Boom’ Corporate Europe Observatory, Transnational Institute

[45Tienhaara, K. (2010) ‘Regulatory Chill and the Threat of Arbitration: A View from Political Science’ EVOLUTION IN INVESTMENT TREATY LAW AND ARBITRATION

[46Eberhardt, P. and Olivet, C. (2012) ‘Profiting from Injustice: How Law firms, Arbitrators and Financiers are Fueling an Investment Arbitration Boom’

[47ICSID Caseload — Statistics: (Issue 2018-2)

[48World Investment Report 2018: Investment and New Industries

[49ICSID Caseload — Statistics: (Issue 2018-2)

[50Van Harten, G. (2012) ‘Arbitrator Behaviour in Asymmetrical Adjudication: An Empirical Study of Investment Treaty Arbitration’ Osgoode Hall Law Journal.

[51The Government of the Republic of Armenia, State Budget s://www.gov.am/am/budget/

[52Eberhardt, P. and Olivet, C. (2012) ‘Profiting from Injustice: How Law firms, Arbitrators and Financiers are Fueling an Investment Arbitration Boom’

[53(2018) ‘Freshfilds delivers firmwide growth’ Freshfields Bruckhaus Deringer http://news.freshfields.com/r/Global/r/5324/freshfields_delivers_firmwide_growth

[54(2018) ‘Armenian Parliament Approves 2019 State Budget’ Jam News https://jam-news.net/armenian-parliament-approves-2019-state-budget/

[55United Kingdom-Armenia BIT (1993)

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