Measures in TPP trade deal are far from unusual, says visiting expert.

Much of the suspicion directed at investor-state dispute resolution - as provided for in the Trans Pacific Partnership agreement - is fundamentally misconceived, says eminent international lawyer Gary Born.

Unlike many people with dogmatic views on the subject, Born knows what he is talking about. He practises and teaches this area of law and serves on international arbitral tribunals.

Critics of investor-state dispute settlement (ISDS) provisions see them as an abrogation of sovereignty, allowing deep-pocketed multinationals to sue, or threaten to sue, governments over regulatory changes which might diminish their profits.

The critics see that as having a chilling effect on public policy and putting a ratchet under neo-liberal measures already in place.

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ISDS is seen as replacing national courts with ad hoc panels of foreign lawyers, free to interpret the very broad notions of "expropriation" and "fair and equitable treatment" as they see fit, award compensation at taxpayers' expense and then go back to being advocates in other cases.

It is a view summed up by the title of a private member's bill that New Zealand First MP Fletcher Tabuteau has in the hopper: the Fighting Foreign Corporate Control Bill, which would prohibit New Zealand from entering international agreements that include provision for dispute settlement.

ISDS is neither new nor uncommon, however. The grandfather of international arbitral bodies, the International Centre for the Settlement of Investment Disputes (ICSID), was set up under the auspices of the World Bank in the 1960s.

More than 3000 bilateral investment treaties and other international agreements include ISDS. In fact the number of agreements providing ISDS protections for foreign investors greatly exceeds the number of cases brought under them over the years.

According to the United Nations Conference on Trade and Development (UNCTAD), which monitors them, by the end of last year 356 investor-state cases had been concluded, of which 37 per cent were decided in favour of the state and 25 per cent ended in favour of the investor with monetary compensation awarded.

About 28 per cent of cases were settled and a further 8 per cent discontinued for other reasons. In the remaining 2 per cent, a treaty breach was found but no monetary compensation was awarded to the investor.

The result, Born argues, is enough jurisprudence to guide our thinking both on how the process works and what decisions are reached.

"Arbitral tribunals tend to conclude that states have breached their public international law obligations only circumspectly and with a fair amount of reserve," he says.

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"The prohibitions against expropriation without due compensation and requirements for fair and equitable treatment are drawn from public international law and conventions which, whether investors like it or not, tend to be formulated and applied relatively restrictively."

It is not just a case of three people going off and deciding willy nilly on a blank slate whatever they wish, Born says.

"They pay considerable deference to past arbitral decisions dealing with similar issues." Careful academic studies have found virtually no arbitral award that does not cite other awards multiple times and is not guided very substantially by those decisions.

Gary Born heads the international arbitration and litigation practices at a transatlantic law firm. Photo / Supplied
Gary Born heads the international arbitration and litigation practices at a transatlantic law firm. Photo / Supplied

Born, who heads the international arbitration and litigation practices at a transatlantic law firm, and has written textbooks on the subject, argues that the fact a high proportion of cases are settled is a sign of the efficacy of the system.

Investors have brought claims alleging violations of fairly fundamental rights and states have settled with them.

"One might say - and I don't think this is oversimplifying things - that in at least a third of all cases the system provides redress both parties regard as satisfactory." For nearly half of the remaining cases, where the tribunal does rule, annulment is sought by one or other of the parties, Born says, but is granted in a substantially smaller percentage of cases.

Annulment requires a review of the matter by a new panel chosen by the relevant arbitral body like ICSID. Five such applications were decided last year, UNCTAD reports. None succeeded.

Arbitration panels consist of three arbitrators, typically drawn from people who teach or practise in this area of international law, or both.

Each side to the dispute nominates one and they try to agree on a presiding arbitrator, failing which the arbitral body agreed in the treaty will choose one.

All three have to disclose potential conflicts of interest when nominated. "Arbitral bodies like ICSID have as their principal function the selection of arbitrators and the resolution of challenges, and are quite diligent if arbitrators are challenged for lack of independence or impartiality," Born says.

"I think the quality of international arbitral tribunals and the awards they render is extremely high. They obviously vary, as national court judgments do, but they compare well with national courts in my view." In fact Born would like to see greater reliance on international arbitration to resolve cross-border commercial disputes between businesses, with no government involved.

He is in New Zealand to advocate bilateral arbitration treaties to facilitate that.

"Unfortunately there are many states around the world where foreign investors and traders have legitimate concerns, not just about integrity but about basic competence and judicial experience with commercial transactions." Bilateral arbitration treaties would give companies, especially smaller ones, contemplating investing, or trading with counterparties, in those countries some comfort that a dispute could resolved on neutral ground, so to speak, and a contract enforced.

"It is essentially providing an international safety net in circumstances where the domestic mechanisms don't work." Trade and investment would benefit.

Even where the two countries both have reputable judiciaries a bilateral arbitration treaty could avoid the not uncommon situation where a dispute leads to parallel proceedings in both jurisdictions, doubling up on legal fees and resulting in often opposing judgments, neither of which is enforceable in the other country. "Not a happy situation."

Bilateral arbitration treaties would provide a default mechanism, Born says.

If companies had agreed on some other dispute resolution mechanism, the treaty would not apply.