We now know one of the three tribunalists who will decide TransCanada’s $15 billion claim against the U.S. for rejecting the dangerous Keystone XL tar sands pipeline that would carry oil from Alberta to Texas: David R. Haigh, Q.C.,a lawyer with a long history of representing the oil and gas industry whose previous clients include Alberta-based oil and gas producers, an Alberta-based oilfield materials supplier, and an Alberta-based oil and gas pipeline company. Mr Haigh works as a senior partner in a law firm working on Canadian tar sands.
The case, which TransCanada is bringing under the North American Free Trade Agreement (NAFTA), is just one of a growing number of suits in which multinational corporations and other investors use sweeping rights in trade deals to challenge environmental protections in private tribunals.
This raises a critical question about such tribunals, known as investor-state dispute settlement (ISDS) tribunals: are they biased in favor of corporations and other investors?
The answer is yes, according to a growing body of independent empirical research.
So why does bias plague ISDS tribunals? How does this affect environmental protection, and where does this leave deals like the Trans-Pacific Partnership (TPP) with ISDS at their heart?
1. Tribunalists are handpicked…
An ISDS tribunal commonly comprises three tribunalists – one picked by the investor, one picked by the government, and one appointed by joint agreement. As a decision can be made by two out of three tribunalists, the party bringing the claim has a huge influence over who judges their claim. While this may be appropriate for commercial arbitration, it is increasingly recognized as inappropriate for investor-state disputes in which i) only investors can bring cases, ii) far more systemic issues are at stake, and iii) governments do not consent to each arbitration, but through treaties, are subject to an unlimited number of claims.
2. …From a small group of largely corporate lawyers…
ISDS tribunals are dominated by a relatively small pool of corporate lawyers working in large commercial law firms. Research highlights that corporate lawyers are likely to value provisions of investment law above environmental or other public policy areas with which they are less familiar. This raises risks of bias without even taking into account the ideological and policy preferences within this narrow group. Even Bruno Simma, an ISDS tribunalist who has sided with corporations in controversial cases against environmental protections, acknowledged that “giving adequate consideration to economic and social rights is the exception rather than the rule in investor-state arbitration.”
3. …Responding to skewed incentives.
Over half of ISDS tribunalists have acted as lawyers for investors in previous ISDS disputes. This remarkable aspect of ISDS, known as “double hatting,” means that the same people who determine how much governments must pay to corporations in their capacity as tribunalists, reap the benefits of a booming ISDS “sector” in their capacity as private lawyers. This unavoidably introduces an incentive for investor-friendliness in decision-making. Some ISDS tribunalists even have specific, pro-corporate ties to the industry that is in question in their disputes.
This revolving door threatens environmental protection when tribunalists in environmentally sensitive cases have ties with polluting industries. For example:
In 2012, an ISDS tribunal ruled in favor of U.S.-based Occidental Petroleum in a case that required Ecuador to pay $1 billion over a policy concerning oil exploration in the Amazon. The tribunalist selected by Occidental had previously worked as a lawyer for an oil company – a subsidiary of ExxonMobil – in an arbitral dispute. The tribunalist jointly selected by Occidental and Ecuador was a former director of TransCanada Pipelines, and former director of Rio Tinto, one of the world’s largest mining companies. While the tribunalist picked by Ecuador was a university professor who disagreed with the amount of money Ecuador had to pay, the support of the other two, fossil-fuel-linked tribunalists was enough to result in a costly ruling against Ecuador.
TransCanada’s private lawyer in its ISDS case against the rejection of the Keystone XL pipeline has acted as an ISDS tribunalist in at least 25 cases. He is currently acting as a tribunalist appointed by an oil and gas company in an ISDS case against India, and as a tribunalist appointed by a mining company in an ISDS case against Pakistan. In his capacity as lawyer for TransCanada, this corporate attorney could conceivably cite his own decisions made in his capacity as tribunalist.
While it is difficult to attribute bias with certainty to any one tribunalist or decision, this revolving door system certainly runs counter to the principle of judicial independence. It also helps to explain why ISDS tribunals tend to interpret vague investor protections to the detriment of environmental protection.
One ISDS tribunal, for example, decided Canada violated a corporation’s NAFTA rights because environmental experts took community values and concerns into account when assessing the environmental impact of a proposed mine. In another case, over Mexico’s refusal to renew an environmental permit for a hazardous landfill, an ISDS tribunal ruled in favor of the landfill corporation, arguing that it had the right to “expect the host State to act in a consistent manner…so that it may know beforehand any and all rules and regulations that will govern its investments.”
Structural bias and conflicts of interest are so inherent to ISDS that tinkering with ethics guidelines would be insufficient to restore impartiality and public trust. Instead, the answer is to follow the lead of the growing number of governments that are terminating and renegotiating trade and investment deals that grant asymmetrical powers to corporations through ISDS.
But the TPP would do the opposite, entrenching ISDS in 40 percent of the global economy and greatly expanding the number of corporations that, like TransCanada, could sue the U.S. government over environmental protections before panels of corporate lawyers. For anybody who sees ISDS as an affront to an independent and impartial judiciary, the first step must be to reject the TPP.