Why Tribunals Imposing Corporate Sovereignty Are Even More Dangerous Than We Thought

from the above-the-law dept

Back in October, we introduced the term “corporate sovereignty” as an alternative to the standard but misleading phrase “investor-state dispute settlement” (ISDS) that is generally used. We noted that perhaps the worst manifestation of corporate sovereignty so far can be seen in Ecuador, where one of the secret tribunals used in these cases had ordered the Ecuadorean government to place Chevron above the country’s constitution.

A detailed and important post from Public Citizen’s Eyes on Trade blog not only sketches the background to that extraordinary demand, but also explains how things have since become even worse:

Now Chevron is asking the same extrajudicial tribunal to order Ecuador’s taxpayers to hand over to the corporation any of the billions in damages it might be required to pay to clean up the still-devastated Amazon, plus all the legal fees incurred by the corporation in its efforts to evade justice.

Yes, you read that correctly: the oil giant’s latest outrageous plan is to force the Ecuadorean government — and hence the people of Ecuador — to pay for the massive clean-up of the damage Chevron’s predecessor company, Texaco, caused to the country, its environment and local communities. As the Eyes on Trade post points out, this means:

[the ISDS tribunal] is acting as if the sovereign court ruling and two decades of trial never happened. In its recent decision, the tribunal barely made mention of the domestic ruling in Ecuador, or of the preceding 18 years of litigation spanning two nations. Many of the arguments that Chevron is bringing before the tribunal are the very same ones the corporation used before Ecuadorian courts — arguments that were rejected. Rather than even examine the domestic courts’ logic, the tribunal has invited Chevron to make the same arguments again as if for the first time.

The case of Ecuador shows how a company can use the corporate sovereignty chapter in international agreements to ignore years of adverse decisions by a country’s highest courts, and to appeal to three arbitration lawyers who take no account of local legislation, practice or traditions, and are literally a law unto themselves.

But maybe Ecuador is just an exception: perhaps ISDS tribunals in other cases have been more respectful of national laws and existing decisions. New research from Gus Van Harten, associate professor at Osgoode Hall Law School of York University in Toronto, suggests otherwise. Studying 162 corporate sovereignty cases, Van Harten reports that 37% of them involved reviewing a government action, while 44% were about disputed legislation or judicial decisions. In other words, in these cases, ISDS tribunals were clearly placing themselves above a country’s politicians and judges. Worryingly, Van Harten found:

there was little evidence that arbitrators demonstrated restraint in ways commonly adopted by domestic and international courts.


the field has apparently offered arbitrators a fertile environment for creative lawyering alongside expansive approaches to their authority.

Unlike traditional judges, whose scope for action is tightly circumscribed by national laws, tribunals that ruled on cases brought under corporate sovereignty clauses had far more leeway for interpretation or — even worse — “creative lawyering.” Van Harten concludes:

In policy terms, the observations indicate a need for closer scrutiny by a range of actors — such as national associations of legislators or judges — of how arbitrators exercise their power and about whether their performance accords with considerations of public accountability, judicial restraint and basic even-handedness.

He also has some advice:

states facing a reasonable prospect of investor claims, or seeking protection for non-Western investors, should systematically assess their anticipated exposure or protection and consider their options to avoid downside risks.

Of course, one obvious way to avoid those risks is for nations to refuse to agree to corporate sovereignty chapters in the first place.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

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Companies: chevron

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Comments on “Why Tribunals Imposing Corporate Sovereignty Are Even More Dangerous Than We Thought”

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That One Guy (profile) says:

Re: Re: Re:

It’s not explody, but that does bring to mind an idea.

1) Seize any assets the company has in the country, given they have apparently refused to pay the fine the country levied against them for the original mess, and have therefor defaulted on the ruling.

2) Sell seized assets to highest bidder.

3) Use profits from sale to clean up mess caused by company.

Or in other words, make them pay for the mess they caused, like it or not.

ECA (profile) says:

Re: Re: Re: Re:

An international corp gets kicked…
DO the banks CARE?? NOPE they will take there money and BAN use of oil from that country. AND then CHARGE USA people more money to pay for the loss.

those running it are not LIABLE for anything.

Get a little history on SUPER FUND SITES in the USA..the CROPS WALKED AWAY..and NOW we are paying for the clean up.

Pragmatic says:

Re: Re: Re: Re:


See above for details of how that would work out, That One Guy. Bad, bad, bad idea.

Big companies have a history of crying to Uncle Sam along the lines of, “The peons won’t accept our oppressive ways. Bomb them!” and, of course, we end up in another war/military entanglement.

Anonymous Coward says:

Re: Re:

“Again, can’t Ecuador simply give Chevron the middle finger and confiscate their assets in Ecuador and tell them to go fuck themselves?”

I suppose they could, but then Chevron would run to their cronies in the US gov’t to get something done. The US has a wide range of things it could use to punish Ecuador, ranging from economic sanctions to releasing private information the NSA may have on some of Ecuador’s gov’t officials to declaring some of those officials “terrorists” (effectively putting bounties on their heads). I doubt many Ecuadorian officials would want that.

Paua Fritter (profile) says:

Re: Re: Re:

Yes, Ecuador’s government has to be very careful. Since they don’t have a sovereign currency (they use the US dollar), they are especially vulnerable as they are unable to run their own monetary policy. President Correa says it would be too costly and would provoke chaos to try to establish a new national currency, but they are strong proponents in the Union of South American Nations of establishing a regional (South American) currency “in the medium term”, which would need to include Brazil at least.

There is the new Bank of the South, backed by Venezuelan oil, and there is the “Bolivian Alliance” (ALBA) trade bloc, not for “free trade” but for “mutually beneficial” trade.

So we can expect Ecuador’s economy to become more and more closely linked with its neighbours’, and less so with the US and Spain and the West generally. That should help to improve Ecuador’s sovereignty vs Western corporations and their governments.

That One Guy (profile) says:

If one good thing comes from this mess...

I would hope it’s that a good many other nations look at this, and other corporate sovereignty cases, see just where it puts the ultimate power, and flat out refuse to sign any future ‘agreements’ that include ISDS clauses.

More than that I would hope that those nations that are currently signed to agreements and treaties that include ISDS clauses start thinking really hard about ‘re-negotiating’ those clauses out of the treaties/agreements, before they too find themselves on the defense against a company that feels entitled to the ability to dictate law to the country, all in the name of profits.

ECA (profile) says:

Re: If one good thing comes from this mess...

Can I suggest something ELSE..

TRY to find a register of ALL the major oil spills…
ITS NOT EASY..and the USA hasnt had the worst ones.

TRY, to find any clean up on those spills.

THEN try to find a list of LEAKY SHIPS…there isnt one..some ships loose about 10% of their load just going from 1 place to another..

Anonymous Coward says:

Re: Corporate Sovereignity vs Citizenship

Anything less puts state citizen in the realm of corporate dictatorship.

That is what the corporations want, either by funding politicians and/or creating laws and treaties that favour them. The first has given them virtual control of the US government, and now they are using US muscle to gain control over other countries.

Anonymous Coward says:

MY corporate sovereignty?

Could I setup my own little corporation and become sovereign? Then, if a traffic cop pulls me over can I basically tell him “Look, bud, you don’t know who you’re messing with here. I’m a sovereign corporation and way above your petty traffic laws. At this point, you’re negatively impacting my profits. So, get back in your car and leave. Now.”

Or this only for big, rich corporations?

Dyspeptic Curmudgeon (profile) says:

Corporate Sovereignty

The ‘received-wisdom’ backup to this is that ‘Texaco was a bad corp’. Of course, there is the little question about how the plaintiff’s lawyers bribed the judge, and paid an ‘expert’ to write the judge’s decision. Of COURSE, they got a massive judgment. But it was a fraud, and should not have been granted.
Chevron is now suing the plaintiff’s lawyers in the USA for damages for fraudulent conspiracy. For the same amount as the judgment.
So ‘corporate sovereinty is not actually involved here. Just extortion and fraud.

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