ISDS – a lawyers’ issue

The European Parliament was the scene of two important events this week.

The first affected us all as citizens. The Greek prime minister was grilled by MEPs, in a theatrical exercise to show that there is democracy at all levels in Europe, in the run-up to the difficult decisions now being made. Here is the most-watched intervention.

But the second event was important for lawyers: the vote on the Transatlantic Trade and Investment Partnership (TTIP), and in particular whether to include an Investor State Dispute Settlement (ISDS) provision. (For newcomers to these initials, TTIP is the gigantic free-trade agreement being negotiated between the EU and the US, and ISDS provisions allow companies to sue governments which have not kept their word in such agreements.)

When I wrote about this last time, I mentioned that international trade lawyers involved in these cases were being accused - by the European Commission, among others - of being subject to conflicts of interest, leading to perceptions of lack of partiality and of financial incentives to multiply ISDS cases.

The accusation was that this arose mainly because ISDS work is carved up between a relatively small clique of trade lawyers, who perform as both arbitrators in some cases and counsel in others. I ended by asking the big law firms to undertake some urgent PR.

Well, if there was any PR, it was unsuccessful. The parliament voted this week by a large majority to set up an investor or international trade court, and take the cases out of arbitration. I am told that the Frankfurter Allgemeine Zeitung quoted the parliament’s main reporter on the issue as saying: ‘We have turned boards of arbitration that are an open invitation for abuse, into independent courts.’ Elsewhere the reporter was quoted as saying: ‘No tribunals sitting in secrecy. No private lawyers deciding on laws of states. No restriction of‎ regulation that is necessary for public interest purposes.’

In other words, arbitration lawyers lost the argument in the European Parliament, and our public reputation as a profession continues to be damaged. I believe some action should be taken to remedy the position.

One of the few legal bodies which has issued a statement on ISDS (maybe the only one) is the International Bar Association. On 20 April 2015, it issued a statement correcting misconceptions and inaccurate information around ISDS. The statement was issued in association with the IBA Arbitration Committee, whose members have ‘extensive experience in ISDS cases, in which they have served as counsel for investors and states and as arbitrators’.

The tenor of the statement was very pro-ISDS.

The IBA statement also said that its Arbitration Committee, and particularly its Subcommittee on Investment Treaty Arbitration, ‘is undertaking an in-depth analysis of the perceived benefits of ISDS and the spectrum of criticisms and concerns voiced regarding ISDS, in order to identify which criticisms and concerns are fact-based and which are not, and to recommend actions for those aspects of ISDS that may benefit from change’.

This is good, but it has been overtaken by events. In my view - and all the views in this article are mine, and not those of the organisation for which I work - arbitration lawyers should no longer be the only decision-makers on behalf of our profession regarding the advantages and disadvantages of ISDS. That is because ISDS touches on a range of issues of concern to the legal profession, of which arbitration expertise is just one.

What I say now will use as an example the structure of the IBA, because it has put its head above the parapet, but applies to any bar or other professional body wishing to respond.

First, apart from the Arbitration Committee, the Bar Issues Commission - which is composed of the regulators and those who deal day to day with lawyers’ ethics - should have an input, too, because there are accusations here of conflicts of interest. Since those accusations are made against the lawyers involved in arbitration, the arbitration sector should not alone respond, but the ethics experts should be asked for their independent views.

Second, the IBA’s Human Rights Institute and other parts dealing with human rights should give their views, too. The IBA has an outstanding record on human rights, and is among the leaders in efforts to promote business and human rights. Given the accusations of ISDS opponents that ISDS allows companies to drive a coach and horses through environmental or other regulatory efforts of a democratic government, the human rights angle should be addressed separately from that of arbitration expertise.

Only by issuing a horizontal opinion dealing with all the issues raised in the European Parliament and elsewhere over the last few months will the legal profession be able to overcome the accusations made against some of its members.

Jonathan Goldsmith is a consultant and former secretary-general at the Council of Bars and Law Societies of Europe, which represents around a million European lawyers through its member bars and law societies. He blogs weekly for the Gazette on European affairs