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The controversial proposals for an investment chapter in TTIP have received significant coverage in recent months. Less well-known is the extensive UK system of ‘Bilateral Investment Treaties’ (BITs) which companies are increasingly accessing, with devastating effect.
International investment agreements and investment chapters in free trade agreements like TTIP offer foreign investors wide-ranging rights that go beyond anything that is offered either to domestic companies or citizens. Most egregious among these is the investor-to-state dispute settlement (ISDS) mechanism, which gives companies the right to sue governments in private tribunals, bypassing domestic courts. Awards against governments are frequently in the millions, if not billions, of dollars and the average cost of defending a case is $8 million.
UK companies have initiated no fewer than 48 of the total 608 known global cases against governmentsThe Trade Justice Movement has for the first time pieced together a full picture of the UK’s significant role in the international investment protection regime. The UK has the second highest number of international investment agreements in the world, including no less than 105 BITs. UK companies have initiated no fewer than 48 of the total 608 known global cases against governments. The cases challenge governments like Indonesia, India, Tanzania and Bolivia, and relate to a broad range of investment activities, from mining and shareholding to the provision of energy and water services.
To qualify for protection under UK treaties, companies have to do little more than make their investment. Unlike German BITs, UK treaties don’t require companies to have substantial business interests in either the UK or the partner country. This meant that Yukos Universal Ltd., a shell company registered in the Isle of Man (a tax haven) was eligible to use UK membership of the Energy Charter Treaty to sue Russia. The resulting award was no less than $50 million, the single largest award in arbitration history.
None of the UK’s BITs require companies to comply with human rights commitments in order to access treaty protections. The case of Anglia Water vs. Argentina illustrates how damaging this can be. Anglia Water was part of a consortium that invested in water provision in Argentina. The company recently used a UK BIT to sue Argentina for measures taken during its 1999 currency crisis. Anglia Water argued (amongst other things) that the government’s refusal to permit tariff increases had negatively affected their investment. The Argentine government and a number of civil society organisations tried to argue that the tribunal should take into account the fact that the case dealt with the human right to access to water, which should be a priority for the government. The tribunal hearing the case refused to take these arguments into account and made an award against Argentina of $405 million.
This failure to taken human rights into account is in direct contradiction with the UK’s recent commitments under its action plan for implementing the UN Guiding Principles on Business and Human Rights (UNGPs). The action plan states that the government will “ensure that agreements facilitating investment overseas by UK or EU companies incorporate the business responsibility to respect human rights”.
The UK’s prominent role in investment isn’t limited to outdated treaties and a large number of cases, it is also a hub for the law firms that take the cases. Freshfields Bruckhaus Deringer, for example, has on several occasions taken first place in the Global Arbitration Review of the top 100 firms in the field. Freshfields has highlighted possibilities for companies to sue governments in response to a range of recent political and economic developments, such as financial crises in the Eurozone, the aftermath of the Arab Spring and following recent conflict in Libya.
UK law firms also have significant involvement in shaping international investment regime. For example, when the Hong Kong International Arbitration Centre introduced new rules in 2013, law firm Allen and Overy not only hosted the road show to launch them, but the committee that drafted the rules was chaired by their Global Co-Head of their International Arbitration Group, Matthew Gearing QC.
The UK’s prominent role in investment isn’t limited to outdated treaties and a large number of cases, it is also a hub for the law firms that take the casesThe final piece of the picture is the UK role in the growing industry of third party funding. Third party funding is an agreement by which a bank, hedge fund, insurance company or law firm agrees to pay all or part of the costs of a case in exchange for a portion of any award. Some of the major specialist funders, such as Juridica Investments, Calunius Capital, Vannin Capital and Burford Group, are based in the UK.
Information on third party funding is not easy to come by. However TJM’s research reveals that companies expect to receive between ten and sixty percent of the award. For example, in a case brought by UK firm Rurelec, Burford Group received US$11 million of the US$31.5 million award made against Bolivia. The investments had been made via two companies (Birdsong Overseas Ltd. and Bolivia Integrated Energy Ltd.) registered in the British Virgin Islands tax haven.
Despite a global trend for reform of international investment treaties, including in the US and in respect of EU treaties, the UK has no such plans for reform. Indeed it ratified a deal with Colombia as recently as summer 2014 and is considering ratification of treaties with a further eleven countries, including Ethiopia, Angola and Zambia. In the light of its research, the Trade Justice Movement is calling for a fundamental review of the UK investment protection system to be undertaken urgently and for no further treaties to be ratified.
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