Monday, November 26, 2012

In a commentary in the Toronto Star, Prof. David Schneiderman, with Prof. Gus Van Har of Osgoode Hall Law School, looks at the the potential financial stake that legal experts who may comment on the Canada-China Foreign Investment Protection Agreement could have in its outcome ("Self-interested lawyers and the Canada-China FIPA," Nov. 26, 2012).

Read the commentary on the Toronto Star website, or below.


Self-interested lawyers and the Canada-China FIPA

David Schneiderman and Gus Van Harten

It will have been hard for many folks to get a sense of the problems with the Canada-China Foreign Investment Protection Agreement.

In the press, critics of the treaty have expressed concern about entering into long-term commitments for the protection of Chinese state-owned enterprises from governments in Canada. Proponents of the treaty, often lawyers, reply that the critics’ concerns are overblown. Often they go on to suggest that the treaty would have few consequences for the capacity of Canadian governments, at every level, to act in a wide variety of fields. Whom should the public believe? Who has a better grasp of the evidence?

One challenge in debating investment treaties is that the treaty text is not the whole story. There is an ever-expanding body of international investment law — arising from disputes between investors and states and decided by arbitrators who operate outside of national or international courts — providing authoritative interpretations of the treaties. Systematic research of these interpretations indicates that they often expand the arbitrators’ own authority and are highly protective of foreign investors, especially where the investor is from an economically powerful state.

The Canadian public should know that many, perhaps all, of the legal experts who have come forward in recent weeks to defend the Canada-China treaty are lawyers who have, or whose law firms have, a financial stake in expanding investor-state arbitration. Alongside the recent spread of the arbitrations, a lucrative new legal industry has emerged. Lawyers in the field provide services as experts, as counsel, or as arbitrators in disputes between investors and states. Even scholars in the Canadian legal academy often provide services as lawyers, arbitrators, or experts in these arbitrations. The financial rewards can be immense.

Also, because investment arbitration is a form of privatized justice rather than a publicly funded court, the costs paid by the disputing parties are very high. Typically, each side pays for its own team of lawyers and experts while the parties share the cost of a three-person tribunal. The relevant legal and arbitration costs have in many cases hit tens of millions of dollars. This makes the system inaccessible for many investors and financially fraught for governments.

For this reason, investors are wise not to launch claims under the treaties without a reasonable chance of success. To make this assessment, they have to buy legal advice. Should they wish to proceed, an array of legal resources is available to be conscripted for a fee. The Canadian government can keep its costs down by having government lawyers appear on Canada’s behalf in the arbitrations. Yet the government’s own lawyers may be lured away by the financial rewards of private practice.

Moreover, the per-case legal costs for governments may still run into millions or tens of millions of dollars. And the risks of an arbitration award against the government raise the prospect of open-ended liability that has, in some cases, reached billions of dollars. Facing a deep-pocketed corporation, governments might prefer to pull back from proposed decisions in closed-door discussions with the investor and his lawyers, rather than assume the cost and risks of litigating investor claims.

This is not to say that the legal community should not contribute to public discourse on investment treaties. Lawyers have expertise that should be heard and from which the public can benefit. We ourselves teach students who may one day serve as lawyers in the field and we do not want to discourage public and timely interventions by informed voices.

But lawyers (and academics) who have intervened in public debates on the Canada-China FIPA need to disclose their financial interest in the outcome of that debate. Full disclosure on the issue of potential self-interest in the ratification of these types of treaties would help the public to weigh the evidence. New treaties that further the interests of international investment lawyers may not necessarily benefit Canada as a whole. This is especially so where the deal exposes Canadian taxpayers to significant risks and Canadian voters to powerful legal constraints that preclude changes to Canadian public policy.