Under the New “Investor-State Arbitration” in the Trans Pacific Partnership, Claimants May Have to Pay Attorneys’ Fees

by Julian Ku

The U.S. and eleven other Pacific Rim countries announced they have reached agreement on the Trans Pacific Partnership trade agreement, which will more tightly integrate 40% of the world’s economy into a single regional bloc. There will be a huge fight in Congress over the TPP by progressive Democrats in the U.S. Even presidential candidate Hillary Clinton has already announced her opposition (sort of).

One area of ire for critics will certainly be the TPP’s provisions for investor-state dispute resolution (See Sen. Elizabeth Warren’s attack on this area here).  The TPP negotiators seem to have recognized that those provisions needed modifications and they seem to have focused on providing more transparency in arbitral proceedings.  But I was particularly struck by the U.S. Trade Representative’s official summary of the agreement’s provisions on investor state arbitration below.

The chapter also provides for neutral and transparent international arbitration of investment disputes, with strong safeguards to prevent abusive and frivolous claims and ensure the right of governments to regulate in the public interest, including on health, safety, and environmental protection.  The procedural safeguards include:  transparent arbitral proceedings, amicus curiae submissions, non-disputing Party submissions; expedited review of frivolous claims and possible award of attorneys’ fees; review procedure for an interim award; binding joint interpretations by TPP Parties; time limits on bringing a claim; and rules to prevent a claimant pursuing the same claim in parallel proceedings.

I find this provision on attorneys’ fees fascinating. I presume this will allow state-respondents to actually recover attorneys’ fees from investor-claimants if those claims were somehow deemed frivolous.  I didn’t realize frivolous claims were actually a huge problem in investor-state dispute resolution.  I am not aware of data showing lots of weak claims being filed with state-respondents just settling to avoid the costs of arbitration.

I am also not aware of any other kind of international dispute resolution, public or private, which has this kind of arrangement. It is worth the wait to see the details, but it is sign the TPP negotiators are getting ready to take fire on this area from folks like Sen. Warren, and have added a little armor ahead of time.

http://opiniojuris.org/2015/10/05/under-the-new-investor-state-arbitration-under-the-trans-pacific-partnership-claimants-may-have-to-pay-attorneys-fees/

11 Responses

  1. I hear about frivolous claims in this context, but I’m not sure which specific claims people have in mind. (I’ve been very critical of ISDS, but my concern is not about frivolous claims.) I’d be interested if anyone could offer some examples of particular ISDS claims they believe were frivolous.

  2. The possibility to recover costs is not new. It may be the first time language expressly to that effect is included in treaties (I don’t know) but all the major arbitration rules give arbitrators wide discretion to award costs and it happens every now and then that investors end up footing the whole bill for the case.

    It is not very common but it does happen. The 2011 Alps Finance v. Slovakia is a good example of a case that may be considered “frivolous” and where the tribunal ordered the investor to pay all costs. From recent ICSID practice, this summer’s Lao Holding v. Laos comes to mind. Another example is a case brought by US investors against Russia (using an ISDS offer included in Russian legislation, admittedly, and not in a treaty) which was rejected as frivolous and the US investors ordered to pay all legal fees.

    More frequent are the cases where the investor has to pay part of the costs due to various defective procedural behaviour, without the case itself being “frivolous” per se.

  3. Julian,

    There has been considerable practice in ISDS of apportioning costs wholly or partly on a “loser pays” basis. In the most recent empirical study of ISDS costs allocations, Gill & Hodgson, Cost awards – who pays, Global Arbitration Review Vol. 10 Iss. 4, September 2015, the authors report as follows.

    “While investment treaty practice is far from consistent, there has been a discernible trend in recent years towards some adjustment of costs in favour of the successful party.

    Almost half of investment arbitration tribunals (49 per cent) made some form of costs adjustment in awards published since 2006 compared with just 35 per cent prior to that. But of course, receiving a costs award is not the end of the story. Indeed, it is a common complaint from states that they are not on a level playing field since investors are often “shell” companies with neither the intention nor the means to make good on an adverse costs decision.”

    Like the description of TPP you note, recent US investment agreements expressly authorize ISDS tribunals to award costs, including legal fees and expenses. See, for example, Articles 11.20.8 (costs arising from expedited review of preliminary questions) and 11.26.2 (all awards) in KORUS. I suspect the TPP provision to which you refer is quite similar to KORUS Art. 11.20.8. Other recent agreements are similar.

    Interestingly, the texts of the EU-Canada CETA and the EU-Singapore free trade agreement both establish for all awards an express “loser pays” presumption for allocation of costs, including legal fees and expenses.

    I hope this is useful.

    Regards,

    Mark Kantor

  4. I wonder what they mean by transparent in any event as the nature of arbitral proceedings are that they are confidential.

    The other concern is that what are the mechanisms for those who are neither the investor or the state to invoke the treaty? You can only be an amicus if there is a case. No case then no amicus. What about someone who complains about the state doing too sweet a deal with an investor or an investor doing something wrong that the state is NOT sanctioning?

    I mean this does remind me of current affirmative action litigation in that the investor and the state are given rights but the affected people may not necessarily be fairly represented by either.

    Just saying.
    Best,
    Ben

  5. Ben and All,

    If the ISDS provisions are anything like the provisions found in every US international investment agreement then, in contrast to commercial arbitration, the agreement will require all hearings to be public, all filings and submissions by the parties to be public, all awards and orders of the arbitral tribunal to be public, the ability of amicus to make legal submissions and the ability of the Non-Disputing State Parties to make submissions. Access to the public materials is free, unlike PACER, WestLaw or Lexis for US Federal courts.

    Tribunals will be authorized to issue Protective Orders limiting disclosure of business confidential, privileged and State protected information. The similar orders issued by NAFTA Ch. 11 arbitral tribunals look a great deal like the protective orders issued by US Federal courts. All of this transparency far exceeds the lack of transparency currently found in the national courts of a majority of TPP States, and is largely comparable to the transparency in US courts.

    MK

  6. Mark,
    That appears to be an awful large “If” at the beginning. Is the draft posted anywhere for independent scrutiny?
    Best,
    Ben

  7. As to the arbitral tribunals, last time I look at ICSID’s list of American arbitrators they were all white males. Talk about lack of diversity – not even one white woman let alone any person of color. How comfortable am I supposed to be with such tribunals deciding these matters? How am I supposed to feel comfortable with those persons deciding who have no commitment to public trust that includes me?
    Just sayin’
    Best,
    Ben

  8. Ben, I cannot defend the lack of diversity on the list of US persons on the ICSID panel, and I can only hope and push for the US to take diversity seriously when it nominates new names to the panel. I strongly support efforts to expand diversity in the arbitrator pool.

    As for the “If,” well the text will be released as soon as the legal scrub is completed. That should take about a month mas or menos.

    But the USTR fact sheet on their website says inter alia “The procedural safeguards include: transparent arbitral proceedings, amicus curiae submissions, non-disputing Party submissions; …” (https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/october/summary-trans-pacific-partnership).

    The Canadian Govt web page says “Provides access to an independent international investor-state dispute settlement (ISDS) mechanism that is prompt, fair and transparent ….” (http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/tpp-ptp/understanding-comprendre/index.aspx?lang=eng).

    Maybe they are both woofin’ us, but ….

    Regards,

    MK

  9. No problem Mark. We are all screwed by the sociopaths we glorify so what the hell.
    Best,
    Ben

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