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Companies Sue Developing States through Western Europe

This article is part of a research project by De Groene Amsterdammer, Oneworld and Inter Press Service, supported by the European Journalism Centre (made possible by the Gates Foundation). See

Utrecht, The Netherlands, Dec 21 2015 (IPS) - Many Europeans fear the Transatlantic Trade and Investment Partnership (TTIP) because it could enable American companies to file claims against their states. The strange thing, however, is that Western Europe is becoming a big hub in this mechanism, called the Investor-State Dispute Settlement (ISDS), leading to billion dollar claims against poorer countries.

Imagine this: a country is in the middle of the worst economic crisis in decades. One in four people is unemployed. Tens of thousands are homeless. Four presidents have been replaced in two weeks’ time. To halt the downward spiral, the government decides to nationalize previously privatized sectors and companies. In response, dozens of companies sue the government, because they feel disadvantaged by the new policy. The government is forced to pay hundreds of millions in financial compensation in the years after.

Surreal? It happened to Argentina after the economic crisis early this millennium. Argentina had signed dozens of bilateral investment treaties (BITs) meant to attract foreign direct investments (FDI). The treaties gave investors the right to sue the Argentinean government in case of a conflict. Argentina became easy prey. With 56 claims to date, it is the most-sued country in the world.

ISDS is a mechanism by which a company can sue a state without actually going to court. The investor can bring his dispute before a panel of arbitrators, which acts as a kind of privatized court. The hearings often take place at the World Bank. Both parties appoint one arbitrator, and these two appoint a third one, the chairman. They are usually investment lawyers. The trio then will decide if the state treated the investor unfairly, and if yes, what it has to pay. There is no possibility to appeal.


The world of investment arbitration is very intransparent. After a few months’ research, journalists working for the Dutch magazines Oneworld and De Groene Amsterdammer have published a number of stories about the hidden world of ISDS. The stories are accompanied by an interactive map, showing all ISDS claims ever filed against a state. The database behind this map contains information about the disputes, the awards and the members of the tribunals.

What is remarkable is the rise of the popularity of ISDS. Whereas in 2000 just 15 claims were filed, in 2014 alone nearly 70 new claims saw the light. By 2014, there were a total of 629 ISDS cases filed. This may turn out to be even more, because not all cases are public. The number of billion-dollar claims is growing.

Canada, the US and Mexico are on the top list of most-sued states. The reason is NAFTA, the free trade agreement of which ISDS is a part. However, the US has never lost a case. If we exclude the cases won by the state, a completely different picture emerges: Argentina, Venezuela, India, Mexico, Bolivia. In other words, developing and emerging countries. Many of these countries have now come to the conclusion that this arbitration system is unfair, or even neocolonial.

Dutch sandwich

Where do the claims originate from? In the list of home countries of investors the US is still number one, but in the last few years they have been surpassed by Western Europe. In 2014, more than half of all claims were filed by Western European investors. Claimant country number one is the Netherlands, with more claims than the United States.

However, a closer look at the companies involved shows that more than two-thirds of all Dutch claims have actually been filed by so-called mailbox companies. They choose to settle in the Netherlands for its attractive network of investment treaties, 95 in total, which are deemed investor-friendly.

“This is known as the Dutch sandwich,” says George Kahale III, an American top lawyer, who defends states in large investment cases. “You put a Dutch holding in between, and you can call yourself Dutch. This is how the system is misused.”

White men

In 88 per cent of the cases, the researchers found the names of the arbitrators involved. From this a picture emerges of a highly select club of men – and two women – who are assigned time and again to judge. A top-15 of arbitrators have been involved in a striking 63 per cent of all cases. In 22 per cent of the cases, even two members of the top-15 were involved, which means that they have been able to make or break the case.

“This is not strange,” says Bernard Hanotiau, a Belgian arbitrator who is also a member of the top-15. That a few arbitrators dominate the scene, he says, is just because they are the best ones. “If you look for lung cancer specialists in Belgium, you also end up with a small group. We are specialists.”

Yet this is problematic. After all, the arbitrators are not judges who have sworn an oath and have been appointed publicly. Most of them are commercial lawyers, who even continue to act as counsels next to their work as arbitrators. It is possible that a state is condemned by a judge whose law firm partner is a lawyer for an investor in a comparable case. The possibility of conflicts of interest is big.

According to Kahale, this leads to too many legal mistakes. “Their business background shines through in their decisions. Their background is commercial arbitration. The aim there is not to create correct legal precedents, but to get parties back to business again as soon as possible. Which is very bad. This is not about some little disputes, this is about multi-billion dollar claims, about principles that are crucial for countries, many of which have just a small GDP.”


Criticism against the current system of investment arbitration is rising, as a growing number of countries decide to terminate the investment treaties behind ISDS. Not only countries like Venezuela, but also Indonesia, South Africa, Ecuador and India. Brazil is working on a model in which only states can file a claim on behalf of an investor.

Even the European countries, in their negotiations with the United States about TTIP, have now decided to plead for an independent investment court, in which investment cases are handled by former judges. The Dutch government has announced it will renegotiate existing investment treaties and make it harder for mailbox companies to abuse the system.

Whether these good wishes will be translated into real policy remains to be seen.


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  • wordscanhelp

    Thank you, helps to understand what is going on, and clearly put. Especially about the arbitrators, which has always seemed to me to be a weak link. There is not voice for the citizens or taxpayers of those countries whose resources or markets the investors are using – a real problem.