Access to Justice and Corporate Accountability for Investment-Related Harms: Opportunities and Limitations of the International Investment Regime

By Jesse Coleman
January 14, 2019

Discussions at the international investment policy level are increasingly focusing on the intersection between human rights obligations, investor responsibilities, and international investment law. In this context, CCSI staff recently gave remarks at two fora on these issues. The remarks below, which address the issues of access to justice and corporate accountability for investment-related harms, were delivered on November 26, 2019 at the UN Forum on Business and Human Rights. A separate set of remarks, which highlight how investor responsibilities are, could, and should be incorporated into or interact with investment law, were also delivered in November 2019 at UNCTAD’s High Level IIA Conference.

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Can the investment regime be used to enhanced access to remedy and corporate accountability for human rights abuses in the context of international investment? If so, how?

The status of the investment treaty and dispute settlement landscape is in flux, with reform discussions ongoing at multilateral, plurilateral, and national levels. Each approach to reform provides opportunities to enhance access to remedy for rights-holders and corporate accountability, albeit to varying degrees; three reform scenarios outlined below highlight these opportunities and their respective limitations.

Scenario #1: ISDS is retained in some form in current and future agreements

In the first scenario, investor-state dispute settlement (ISDS) is retained in some form in current and future investment treaties. States and other stakeholders are increasingly recognizing and feeling the outsized costs associated with ISDS and investment treaties. As a result, the future of this dispute settlement mechanism is at the very least uncertain. However, if it were to be retained, or if a multilateral investment court (MIC) were to be established, reforming ISDS to ensure that the rights of affected third-parties are meaningfully protected is critical.

The Columbia Center on Sustainable Investment (CCSI) outlined potential ways for advancing this aim in a joint submission with the International Institute for Environment and Development (IIED) and the International Institute for Sustainable Development (IISD) to UNCITRAL’s Working Group III on ISDS Reform. The submission outlines three options, which exist in part or in full in many domestic legal systems:

  • Intervention by third parties, going beyond amicus curiae submissions;
  • Dismissal of claims where third parties cannot or will not be joined; and
  • Reframing of claims, arguments, or remedies where third parties cannot or will not be joined.

The submission also highlights how the courts in some domestic systems, including the United States, have developed rules and jurisprudence to clarify under what circumstances participation is deemed desirable or necessary, and when the interests of a third party should be considered separate to those of a respondent state in a claim.

These options – intervention, dismissal, and reframing – may provide mechanisms for third parties to protect their ability to seek remedies outside the ISDS system. The existing ISDS regime can undermine access to justice for investment-affected rights-holders by, for example, subverting the proceedings or outcomes of separate legal disputes between third parties and investors in other legal fora (often in host, or at times home, state courts). Integrating means of intervention, dismissal, and/or reframing in the current system may thus help to avoid situations such as those that have materialized in claims brought against Ecuador, Guatemala, Thailand, Zimbabwe, and others, where investor-state claims have affected remedies sought by investment-affected rights-holders in other fora. Those ISDS claims were, or are being, heard in isolation of third party rights and interests, and yet they profoundly affect those third parties and the remedies they are seeking.

While the approaches outlined above focus on trying to ensure that ISDS disputes do not harm the rights and interests of third parties, another set of considerations relates to whether ISDS can actually be used to support third parties’ access to remedy and improve corporate accountability. The effectiveness of intervention in, and dismissal or reframing of, claims is limited by the nature of ISDS. Under the current system, claims are initiated by investors. Even in the context of counterclaims – which often attract much attention as a solution for rebalancing the asymmetry in the investment regime between state obligations and investor responsibilities – those counterclaims are brought by states in response to, and not independent of, investor claims. Counterclaims may overlap with grievances of non-parties, but are not raised directly by those non-parties, and may not be argued or resolved in ways that those non-parties would prefer or support. (Some of the policy considerations raised by settlements as part of counterclaims are addressed by my colleagues here.)

Even if reform of ISDS were to enable intervention by third parties, or dismissal and reframing of claims where third parties cannot or will not be joined, these notable but limited adjustments to the status quo will not provide investment-affected rights-holders with powers to initiate claims against investors for harms done to their rights. If ISDS is retained, additional reforms would have to be adopted – whether to the existing ad hoc system or a standing court-type system – in order to provide those third parties with independent rights of standing within ISDS.

Scenario #2: States choose to withdraw advance consent to ISDS and retain substantive treaty standards with a state-to-state dispute settlement mechanism

In a second scenario, states could withdraw advance consent to ISDS – for example, through a unilateral declaration or a multilateral opt-in instrument – but continue to remain bound by substantive obligations under existing treaties.

In this context, investor-initiated claims could be addressed at the national level, with treaty obligations remaining subject to state-to-state dispute settlement, allowing states to provide their respective interpretations of treaty protections and seek redress for investors in the case of breach. Resolution of investment disputes at the national level may bring these disputes to a forum that recognizes the rights of participation and standing of affected rights-holders. Such an approach may therefore help to avoid investor-initiated claims being heard in a parallel forum available only to investors.

States could also explore establishment of mechanisms that build on the model adopted by Brazil in its Cooperation and Facilitation of Investment Agreements. This approach provides for “Focal Points,” which are ombuds mechanisms designed to address investor grievances. While they do not currently provide a clear or concrete way for third party rights and interests to be integrated into this grievance process, they do not preclude it. Further research is needed to understand whether and how these dispute prevention mechanisms affect host state conduct and regulatory space. With respect to access to remedy for investment-affected rights-holders, they may provide an opportunity to better understand how, for example, human rights and investment ombuds mechanisms could work together to address grievances in an inclusive manner at the national level before they proceed to domestic courts or to state-to-state dispute settlement.

With respect to corporate accountability, this option is more limited than the third scenario discussed below. As substantive investment treaty obligations remain in force, scenario #2 does not provide an opportunity to align these standards with human rights obligations and to use that alignment to promote human rights-compliant conduct on the part of investors.

Scenario #3: States terminate treaties that do not align with sustainable development and human rights obligations, and consider how to develop a system for investment governance that would advance these objectives and obligations  

Lastly, in a third scenario, states could terminate treaties that do not align with sustainable development and human rights obligations, and consider how to develop a system for investment governance that would align with these objectives and obligations.

Regarding termination, CCSI has published a policy paper that builds on existing work regarding withdrawal of consent to ISDS and termination of treaties. CCSI, IIED and IISD also made a joint submission to UNCITRAL’s WG III that provides draft language for an instrument on withdrawal of consent and termination of treaties. This paper and submission note that termination can be accomplished unilaterally, but also highlight how termination could be achieved:

  • on a multilateral basis (e.g., EU member states will terminate intra-EU BITs due to inconsistency with EU law); or
  • on a bilateral basis.

By terminating existing treaties, states could create a space for development of a system that more purposefully aligns with and does not undermine human rights obligations. Out of the three scenarios outlined in this blog, it’s the most holistic approach.

In terms of a new international framework for investment governance, a number of approaches could be explored. One option is a multilateral framework convention (or other forms of international agreement) on sustainable investment, based on a number of SDG-aligned pillars. Among the many issues such a convention could address are collective action challenges related to the governance of international investment. Access to remedy for investment-affected rights-holders and corporate accountability are certainly two of those challenges. Commitments that could be included in such a convention might include:

  • Reaffirmation or strengthening of obligations that are being discussed in the context of the legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises;
  • Commitments to enable claims against parent companies in the home state;
  • Conditioning of any treaty benefits on, inter alia, compliance with due diligence requirements, or more broadly with the UN Guiding Principles on Business and Human Rights; and
  • Cooperation around legal and technical support for investment-affected rights-holders, which can be an immense challenge for many host states, rights-holders, and support-providers, and one that also affects the viability of projects for investors.

The path(s) forward?

These are three very different scenarios, each with its own distinct advantages and disadvantages, that can be pursued individually or in parallel. A government may, for instance, withdraw consent to ISDS (Scenario #2) while working through UNCITRAL’s WG III on procedural reform (Scenario #1) and, more broadly, pursuing a new vision for cross-border commitments and collaboration on international investment (Scenario #3). It remains unclear where reform of ISDS – and of investment treaties more broadly – will take us. Irrespective of the path or paths chosen, providing and protecting effective access to remedy for investment-affected rights-holders and enhancing corporate accountability must be amongst the principles that guide reform of the investment regime going forward – reform that is broadly recognized as both overdue and much-needed. Any future iterations of the regime must address these issues for investment governance to align with states’ human rights obligations and tackle the legitimacy deficit now synonymous with ISDS.

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For more information on aligning investment frameworks with human rights obligations and sustainable development objectives, see:

  • Our submissions to UNCITRAL’s Working Group III on ISDS Reform.
  • Our webinar and working paper on the interaction between international human rights and investment law.
  • Our research on the implications of the investment regime for access to justice for investment-affected rights holders.