Revealed Secret Courts Allowing Energy Companies To Sue Billions Accused Of Bias As Governments Walk Away Energy Industry

On Wednesday, the EU will meet to discuss reforming the Energy Charter Treaty (ECT), but late last week, Germany became the latest European country to announce its intention to leave the treaty. Slovenia pulled out earlier in the week, following similar moves by France, the Netherlands, Spain and Poland. The UK is now one of the last major economies remaining in the ECT. The ECT’s investment arbitration tribunals were established in 1998 to protect energy companies operating in countries of the former Soviet Union from government expropriation and regulation. They gave companies the right to seek compensation if legislation or policies were enacted that could be considered hostile, using the investor-state dispute mechanism that caused much public controversy during the negotiation of the Transatlantic Trade and Investment Partnership (TTIP). Since then, the treaty has been signed by more than 52 countries across Europe and Central Asia, with oil, gas and coal companies receiving more than $100 billion from ECT tribunals. British oil company Rockhopper was recently awarded $190 million in a case it brought against Italy, which is challenging the decision. As countries have tried to curb their emissions under the post-2015 Paris climate agreement, the number of claims submitted has soared. Renewable energy companies have also brought a number of lawsuits. As signatories prepare for a crucial meeting in Mongolia on November 22, the ECT is facing what one critic has called a “legitimacy crisis” for a number of reasons, including the way the courts are made up, fueling growing concerns about perceived conflicts of interest. ECT tribunals can operate under various systems, but the World Bank’s International Center for the Settlement of International Disputes (ICSID) rules are most often used. The system is different from most national legal systems, which use a publicly appointed and independent judiciary. ICSID tribunals work with independent arbitrators appointed by the parties, but who may work in different roles for employers with conflicting interests within the system. Each case is decided by a panel of three arbitrators: one appointed by the state, one by the investor, and a third who acts as chairman or president and is chosen by the other two arbitrators. The cases are conducted behind closed doors and there is no obligation to make the outcome public. The choice of arbitrator can be challenged if a party disagrees, but there is no guarantee that it will succeed. Each case is decided by a panel of three arbitrators: one appointed by the state, one by the investor, and a third who acts as chairman or president and is chosen by the other two arbitrators. The case is then argued before the committee by lawyers acting as advocates for each party. The cases are conducted behind closed doors and there is no obligation to make the outcome public. The choice of arbitrator can be challenged if a party disagrees, but there is no guarantee that it will succeed. “Dual hatting” occurs when a lawyer takes on more than one role in different cases – for example – sometimes acting as counsel to an investor, other times as a chairman, who is supposed to adjudicate independently. An analysis of cases brought so far under the ECT – conducted by the Guardian, the Transnational Institute and Powershift – found that in a significant number of cases, a person who had previously acted as an investor-appointed arbitrator in a case was appointed to acts as counsel (or lawyer) for a party in another similar case. Without full disclosure – which is one of the main reasons for challenging an arbitrator – there can be no guarantee that the arbitrators have had no ties to the law firm (or lawyers) acting as counsel in cases they litigate, or that they have not acted as counsel. in similar cases, resulting in the risk of prejudging the issues at hand. Indeed, their reputation in this regard may lead some customers to seek them out. Of the 191 arbitrators appointed to participate in ECT hearings, only 37 elite lawyers – about 18% of the total – have heard half of the ECT cases. Seventeen members of this group have acted as arbitrator and legal advisor, in the ECT and other investment tribunals. Sixteen of the 17 arbitrators have participated in fossil fuel cases – most were selected by investors – and only three of the 37 have not participated in a fossil fuel-related arbitration panel. Of the cases in which the “double hats” acted as arbitrators, 58% won for investors, according to the analysis. According to the ICSID rules, arbitrators should be “persons of high moral character and recognized competence in the fields of law, commerce, industry or finance who can be relied upon to exercise independent judgment”. However, these rules are self-regulated by referees – critics say they cannot be enforced – and successful removal of referees is rare. In Spain, for example, only one proposed ECT arbitrator has been disqualified, out of 19 challenges. Many arbitrators believe they can separate the different roles they may play in different situations. Klaus Sachs, an ECT-focused referee based in Munich, said that “as in any profession, excellence is a path to success and among those referees who are in high demand, you have very qualified people. They are very good lawyers.” There was, he added, “a lot of new talent coming in and so the market is changing as a new generation comes into the space.” However, critics argue that this is a recent and overrated trend. They say that allowing parties to appoint arbitrators who have acted as advocates in similar cases opens up what Lucía Bárcena, of the Interstate Institute, called “a Pandora’s box of conflicts of interest.” It has also sparked “prolonged and heated debates in the international commercial arbitration community,” according to a 2017 study. In it, international legal expert Philippe Sands asked whether a lawyer could impartially wear an arbitrator’s hat in the morning and consult in the afternoon . “Speaking for myself, I find it hard to imagine that I could do it,” he said. George Kahale III, president and partner at the law firm Curtis, Mallet-Prevost, Colt & Mosle, which represents states in international arbitration cases, said the small number of arbitrators available to states also caused “a clear structural bias” toward investors in the courts of the ECT. “The pool of arbitrator candidates that I would consider to be ‘straight shooters’ … is very, very small, while the pool of investor-friendly arbitrators is as wide as the Pacific Ocean,” he said, in a video call from New York. Kahale, an ECT veteran, said he had been involved in many ISDS cases where he knew the outcome of a tribunal as soon as he saw its composition. The most important stories on the planet. Get all the week’s environmental news – the good, the bad and the must-haves Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. “There’s almost no chance you’ll get someone from that small pool [of arbitrators] that states would normally consider appointment,” he said. Defenders of the system say the pool for defending states is filled with “very prominent and good arbitrators” and is “relatively large”, though smaller than that for investors. “When it comes to the chair, obviously it gets more complicated,” Sachs said. “But I don’t think, when a party learns that I’ve been appointed to preside over a case, that they know what the outcome is going to be, and I think that’s true of the great majority of real professional arbitrators.” Sachs emphasized that challenging arbitrators could be a lawyering tactic and that “in most cases, the decisions are well reasoned and balanced.” But he accepted that umpires “were not often removed” because of a challenge. Kahale said that adding all this up – and what he called “a virtual explosion” in the size of compensation claims – the result was “a crisis of legitimacy within [ISDS] System”. This view is shared by Sands. Laurence Tubiana, one of the architects of the Paris agreement and managing director of the European Climate Foundation, said the analysis “clearly shows that the energy map treaty’s judicial system reeks of potential conflicts of interest favoring fossil fuel investors and threaten the climate of Paris. agreement. Once again, the oil and gas industry has found ways to control the game.” Amid a system that could bring fossil fuel investors more than a trillion dollars in compensation by 2050, there are widespread fears that ECT could trigger what the UN Intergovernmental Panel on Climate Change (IPCC) has called “ regulatory complacency’ at a time when new climate laws are needed. “The energy map treaty is inconsistent with the Paris agreement,” said Patrice Dreiski, a former ECT executive. “The main aim of the ECT is to promote and protect investment in fossil fuels, which is not the aim of the Paris agreement at all.” To date, investors have won 64% of closed ECT cases, three-quarters of which covered the fossil fuel sector, according to the analysis. The data was mainly collected by the Interstate Institute from the database of the UN Conference on Trade and Development, the overview of ECT cases, the ICSID and Permanent Court of Arbitration databases that manage disputes, public court documents published in italaw. com and specialized media. The impression of a…