Exposed: elite club of lawyers who make millions from suing states

23 November 2012
Press release

A small club of international law firms, arbitrators and financial speculators are fuelling an investment arbitration boom that is costing taxpayers billions of dollars and preventing legislation in the public interest, according to a new report from the Transnational Institute and Corporate Europe Observatory.

Profiting from Injustice unveils a secretive but burgeoning legal industry which benefits multinationals at the expense of taxpayers, the environment and human rights. Law firms and arbitrators, who are making millions from investment disputes against governments, are actively promoting new cases and lobbying against reform in the public interest.

Cecilia Olivet, from the Transnational Institute, one of the report’s authors said:  “The alleged fairness and independence of investment arbitration is entirely illusory. Governments have their hands tied, while multinationals benefit from an inherently pro-corporate bias. A handful of firms are actively encouraging corporate clients to sue governments; meanwhile top arbitrators are using their influence to secure investor-friendly rules and sustain the flow of multi-million dollar lawsuits.”

The 76-page report explains how investment arbitration, which was originally envisioned for cases of straightforward expropriation, has boomed in recent years. There were 450 known cases in 2011, compared to 38 in 1996.1 Fees and awards have also skyrocketed, with legal and arbitration costs averaging over US$8m per dispute, and exceeding US$30m in some cases.2

The industry is dominated by a small number of northern law firms3 and elite arbitrators.4 Three firms, Freshfields (UK), White & Case (US), and King & Spalding (US) claim to have been involved in 130 investment treaty cases in 2011 alone, while fifteen arbitrators – the ‘inner mafia’ – have decided on 55% of all known investment treaty disputes.

Many arbitrators also act as counsel, as well as working as academics, government advisors, lobbyists and media commentators. Some have strong personal and commercial ties to companies. All this gives them huge influence over the system, which they have a vested interest in sustaining.5

The report also describes a new aspect to the investment arbitration industry: third-party funding. Increasingly, investment funds such as Burford (US) and Juridicia (UK) are speculating on cases, lending money to companies so they can sue governments, and taking between 20% and 50% of the final award.6

Emblematic investor-state disputes include tobacco giant Philip Morris suing Uruguay and Australia over health warnings on cigarette packets; and Swedish energy multinational Vattenfall seeking $3.7bn from Germany following that country’s decision to phase out nuclear energy.7

Some governments are taking action against investment arbitration. Australia no longer allows investor-state provisions in its trade agreements. Bolivia, Ecuador and Venezuela have terminated several investment treaties; and South Africa has just announced that it will neither enter into new agreements nor renew old ones.

Pia Eberhardt, from Corporate Europe Observatory, the other author, said: “The self-serving actions of the investment arbitration industry have unveiled the inherent injustices at the heart of the international investment regime. Governments should either refuse to sign investment treaties, exclude clauses that allow companies to sue the state, or, at the very least, ensure public interest legislation such as environmental protection and human rights can not be challenged.”

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For more information, to receive a copy of the report, or to arrange interviews, contact: Amy Barry in the UK on +44 7980 663297 or amy@amybarry.net; Pia Eberhardt in Germany on +49 221 789 67810 or +49 152 56309102 or pia@corporateeurope.org; Cecilia Olivet in the Philippines on +63 9174690163 or ceciliaolivet@tni.org; and Nick Buxton in the US on +15309023772 or nick@tni.org

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