Corporations Using Foreign Tribunals To Attack Domestic Court Rulings

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Above photo: A police officer looks on as protesters participate in a demonstration outside of the Chevron headquarters in Feb., 2011 in San Ramon, California.

Should an international tribunal of three private attorneys, sitting outside of any domestic legal system, have the power to overrule domestic courts?

That’s the question addressed in the recent analysis, “Investment Agreements versus the Rule of Law?,” published on UNCTAD’s Investment Policy Hub by Todd Tucker, Gates Scholar at the University of Cambridge’s Centre of Development Studies.  The piece highlights the little-known but creeping practice of corporations asking foreign tribunals to second-guess domestic court decisions not in their favor and to order taxpayer payment as compensation.

These tribunals are the product of the “investor-state” system, a little-known creation of “trade” and investment deals that empowers foreign corporations to skirt domestic courts and directly challenge governments before extrajudicial tribunals for policies and decisions that they claim as undermining “future expected profits.”  Under this extreme system, foreign corporations have challenged toxics bans, land-use rules, regulatory permits, water and timber policies, medicine patent policies, pollution clean ups, climate and energy laws, and other public interest polices.

As if undermining a government’s public interest laws and regulations was not enough, foreign investors are increasingly using the investor-state system to challenge court judgments, undermining the principles of legal certainty, state sovereignty, and rule of law more generally.  While domestic courts often employ safeguards, such as the principle of judicial review, judicial independence and transparency in their decision-making, these safeguards are notably absent in investor-state arbitrations, where lawyers who represent the investors take turns as ostensibly “impartial” arbitrators, interpretations of international law are regularly inconsistent and erroneous, and decisions often cannot be appealed.

In his compelling piece, Mr. Tucker cites examples from three investor-state case decisions issued in the last several years, Mr. Franck Charles Arif v. Republic of Moldova and two iterations of Chevron v. Ecuador, in which the tribunals found Moldova’s and Ecuador’s domestic court decisions to be in violation of these countries’ obligations to foreign investors under Bilateral Investment Treaties (BITs).

In the Moldovan case, Moldovan airport officials gave Franck Arif, a French national, an exclusive concession to operate tax-free shops at an airport.  When his competitors challenged this in court, Moldovan courts found that the non-competitive concession was illegal.  In response, Franck Arif launched an investor-state case against Moldova under the France-Moldova BIT, arguing that the courts’ ruling violated the “fair and equitable treatment” provision in the BIT – the vague obligation that inventive tribunals have interpreted as corporations’ “right” to a legal framework that conforms to their “expectations.” The tribunal first conceded that the Moldovan courts had “…applied Moldovan law legitimately and in good faith in the proceedings commenced by Claimant’s competitors.” Nevertheless, the tribunal still decided that the Moldovan courts’ rulings conflicted with the airport officials’ granting of the non-competitive concession, and therefore constituted a violation of the vague “fair and equitable treatment” obligation as a “breach” of Mr. Arif’s “expectations.”

In one of the Chevron v. Ecuador cases, a three-person tribunal last yearordered Ecuador’s government to interfere in the operations of its independent court system on behalf of Chevron by suspending enforcement of a historic $18 billion judgment against the oil corporation for mass contamination of the Amazonian rain forest.  The ruling against Chevron, rendered by Ecuador’s courts, was the result of 18 years of litigation in both the U.S. and Ecuadorian legal systems.  Ecuador had explained to the panelthat compliance with any order to suspend enforcement of the ruling would violate the separation of powers enshrined in the country’s Constitution – as in the United States, Ecuador’s executive branch is constitutionally prohibited from interfering with the independent judiciary.  Undeterred, the tribunal proceeded to order Ecuador “to take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment [against Chevron].”

This dangerous trend of private three-person tribunals assuming the authority to contravene domestic court decisions at the behest of multinational corporations should raise the ire of those who support the independence of courts, the sovereignty of nations, the rule of law, or even the core democratic notion that a system of legal decision-making should be accountable to those who will live with the decisions.  Now the Trans-Atlantic Free Trade Agreement (TAFTA) and the Trans-Pacific Partnership (TPP) threaten to expand the investor-state system across two oceans, subjecting domestic court decisions to a new wave of second-guessing by unaccountable tribunals.  Now is the time to halt the advance of this extreme system – to restore the authority of our courts and the principles of our democracy.