Investment treaty arbitration and dispute resolution finance

There are now over 3,000 investment treaties worldwide. Investment treaties govern the treatment of investments made by individuals or companies from another State and promise a certain level of protection to investors from the other country. This protection includes the ability to claim compensation before an independent arbitration tribunal if the investor considers that the promise of protection was not provided.

These agreements are negotiated on a bilateral, multilateral or sectoral bases. Some are stand alone treaties and others are part of a free trade agreement. One of the largest of these agreements is the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). The CPTPP is a free trade agreement signed by 11 countries, including Japan, Canada and Australia. It governs areas from investment to electronic commerce to intellectual property.

In this podcast, Omni Bridgeway Investment Manager and arbitration specialist, Nathan Landis, chats with Nick Gallus, Special Counsel with law firm Lipman Karas. Nick previously worked as counsel for the Canadian government in the negotiations over the CPTPP, including over the investment chapter. Nathan is a former barrister in Western Australia and prior to that was counsel at global law firm Clifford Chance. He has been involved in a number of international arbitrations, both from the investment and the commercial arenas.

Nathan and Nick discuss a range of issues relating to investment treaties including:

• The significance of the CPTPP to Australian companies.
• The importance of investment treaty protections in general.
• The role of international treaty arbitration to resolve any claims.
• Example of investment treaty claims, including funded treaty claims.

Podcast transcript

Justin McLernon:
Hello, and thank you for tuning in to the Beyond Hourly Podcast, hosted by Omni Bridgeway, one of the world’s most experienced dispute funders and enforcement specialists. Our podcast focuses on commercial disputes around the globe and innovative ways to maximize value for clients and law firms.

Episodes of this podcast can be found on our website, www.omnibridgeway.com, iTunes, Spotify and other podcast networks. We welcome you to subscribe to the podcast and leave us reviews.

My name is Justin McLernon and I’m your host for today’s podcast, Investment treaty arbitration and dispute resolution finance. I’m an Investment Manager based in Omni Bridgeway’s Perth office.

In this podcast, my colleague, Nathan Landis, chats with our guest, Nick Gallus.

Nick is a Special Counsel with Law Firm, Lipman Karas, based in Adelaide. Nick has extensive experience representing states and multinational companies in investment treaty and commercial arbitrations, WTO disputes, and treaty negotiations. He has advised clients on a broad range of international disputes, including in the resource, energy and construction sectors. Nick also lectures in international arbitration at Monash University in Melbourne and previously taught international trade and investment law at Queen’s University in Canada.

Nathan Landis is an Investment Manager with Omni Bridgeway, based in Perth. Nathan was previously a barrister in Western Australia and prior to that was counsel at global law firm Clifford Chance, where he worked on large commercial disputes, international arbitration matters and cross-border litigation matters. Nathan is a Member of the Chartered Institute of Arbitrators and has appeared in a range of courts and tribunals in Australia and the Middle East.

In this podcast Nick and Nathan will discuss a range of issues relating to investment treaties between states and other entities, in particular, the types of disputes that arise under investment treaties and the role of international treaty arbitration to resolve these claims.

Welcome Nick and Nathan.

Nathan Landis:
Thanks Justin. Nick, could you please start by telling our listeners a little background on your career in the law before joining Lipman Karas?

Nick Gallus:
Certainly. And let me start by thanking you for inviting me to join the podcast, Nathan. Before joining Lipman Karas here in Adelaide, I was in Paris with the arbitration boutique, Three Crowns, working on a mixture of commercial arbitration and investment treaty arbitration. And I should say representing both claimants and governments as well. And before that, I was working with the Canadian government as counsel in investment treaty disputes, as well as WTO disputes and also helping the Canadian government to negotiate investment agreements and trade agreements, including the Comprehensive and Progressive Trans-Pacific Partnership, which took up a lot of my time there.

Nathan Landis:
And a bit of a mouthful to say as well.

Nick Gallus:
It is. Unfortunately, the acronym is also a mouthful, CPTPP. So whether you're saying the full name or the acronym, it's hard to get out.

Nathan Landis:
Well, over the last 30 years, Australia has steadily entered investment treaties with states and other entities. These treaties promised a certain level of protection to investors from the other country, including that those investors can claim compensation before an independent arbitration tribunal if they feel the promise of protection was not provided. Firstly, can you tell us how many of these treaties there are worldwide and how often disputes arise?

Nick Gallus:
I think now there are over 3,000 of these treaties, most are bilateral treaties between two countries. There are also some multilateral treaties, including the CPTPP that we talked about before. As for disputes under these treaties, I think we're at almost 1,000 disputes now. And of those 1,000 disputes, they've generated hundreds of awards, including some big awards for claimants.

Nathan Landis:
Sounds good. Can you tell us about the largest ever investment treaty, which I believe we've already mentioned, that entered into force at the end of last year?

Nick Gallus:
I'm not sure if it's the largest investment treaty. There are big treaties, for example, with the Energy Charter Treaty, which has a lot of signatories and has an investor state dispute settlement mechanism. The CPTPP, which we talked about before, certainly one of the larger agreements governing economic relations for all the countries. I think there's 30 chapters there, governing everything from investment to electronic commerce to intellectual property. And the investment chapter, with 11 signatories makes it one of the bigger investment treaties, and certainly right up there with the Energy Charter Treaty.

Nathan Landis:
Yeah, and that's both in terms of the number of countries that are involved, as well as the economic activity that those countries are involved in.

Nick Gallus:
That's right. The signatories include Japan and Canada, big G7 countries. Initially it was negotiated with the United States, which would have made it an even bigger treaty. After Donald Trump was elected president, the US pulled out. And so its scope became a little bit smaller. But perhaps, who knows, in the future the US may join again and it may become a treaty with even bigger scope.

Nathan Landis:
That might make the treaty great again.

Nick Gallus:
The treaty's already great, but perhaps they'll make it even greater.

Nathan Landis:
Now I understand you had a role in the negotiations of the CPTPP. Can you tell us about that role?

Nick Gallus:
Yes. So while working with the Canadian government, I was counsel for the government in the negotiations over the agreement. That involved several chapters, including the investment chapter. That involved participating in the negotiations, giving legal advice and helping to settle the final text of the investment chapter of that agreement.

Nathan Landis:
Lots of meetings and lots of coffees.

Nick Gallus:
Lots of meetings, lots of coffees and lots of travel because it was a T        rans-Pacific partnership and we were coming from Canada. A lot of the travel was to countries on this side of the pond. At the final stages of negotiations that travel was every month. So it was a lot of travel at a time when I had small children and therefore a very upset wife.

Nathan Landis:
But you seem to have gotten through to the other end okay.

Nick Gallus:
We did get through okay, yes.

Nathan Landis:
Now, Australia has entered into these sorts of agreements with other countries before and I think you mentioned the Energy Charter Treaty, which although we have signed, it's not yet ratified. But the CPTPP is significant for a whole other range of reasons. Can you expand on that?

Nick Gallus:
It's significant for the countries that are party to the treaty and, in particular, countries that have now agreed to investor state dispute settlement with Australia. In particular, Japan and Canada have now agreed to investor state dispute settlement with Australia. And that's significant because Canada and Japan, two of the biggest sources of foreign investment into Australia, and Japan in the top five and Canada's in the top 15. Canada is particularly important for this area because a lot of the investment of Canadians into Australia, and of Australians into Canada is in the resource sector and typically, as you know, that's where we see a lot of investment for your claims.

Nathan Landis:
And can you describe some of the investments that say, the Canadians have in Australia and vice versa?

Nick Gallus:
Yeah, certainly there are some big Canadian investments in Australia. Barrick has a big gold mine, I think in your part of the world, Nathan?

Nathan Landis:
Yes, that's right.

Nick Gallus:
We know there are certainly a big Canadian gold mine also operating in Victoria, Kirkland Lake Gold, and there are others as well. And they're also a lot of Australian companies operating in Canada, including the Adams Pit, I think, is a big mine.

Nathan Landis:
Yeah, and Woodside in my part of the world as well has a fairly large investment in LNG in Kitimat, also.

Nick Gallus:
Right.

Nathan Landis:
When we're talking about the investments in the resources sector, why are investment treaty protections so important?

Nick Gallus:
The main reason that they're important is that often in the resource sector you have companies that have, as their only asset, the mine that they're operating. And resources are often a politically sensitive issue for a country. And so when a government is elected who is choosing to either nationalize its resources or focus more on locals rather than foreigners, what often happens is that the country will interfere with foreign investment in the resource sector, and sometimes will wipe out an investment completely by expropriating the mine.

And in those circumstances, the investment treaty claim can often be the last resort for the investor claiming the damage inflicted by the government interfering with the investment. It can be the last chance for the investor to recoup their investment, in some circumstances, to find the profits that they would have earned through the investment.

Nathan Landis:
So there's been a number of successful investment treaty claims in the resources sector which address some of the issues that you've just identified. Are you able to give us an example of one of those claims?

Nick Gallus:
Certainly, yes. It seems like every couple of months now there's a big award in the resources sector. The one we were talking about just before has got a lot of headlines. The successful claim by an Australian company operating in Pakistan and who was denied a mining permit after, the tribunal held, being told over several years that that mining permit would be awarded. And the tribunal found that by denying the company the mining permit at the end of that process, that Pakistan had failed to act consistent with the obligation to provide fair and equal treatment, and had also expropriated the investment. And as a result, the tribunal awarded the Australian miner over $8 billion dollars. That's a recent headline where a mining company has secured a big win under an investment treaty, but there are several others over the last couple of years.

Nathan Landis:
And that claim, or the underlying dispute that led to that claim, that seemed to also encapsulate some of those political issues that you talked about earlier.

Nick Gallus:
Yeah, I wasn't involved in the case and so I can't speak from personal experience. But reading the award, it seems that the miner, over several years, had a very good relationship with the local government, which is often critical for success in these areas. And that at some point the local provincial government decided that it wanted to operate the mine. And therefore, ultimately, denied the permit. And as a result, the miner turned to the treaty and successfully claimed compensation.

Nathan Landis:
So there's been a lot of investment treaty claims between developed countries with sophisticated regulators who nevertheless breached their treaty obligations. So it's not just a case of investors from the developed part of the world investing in developing parts of the world and finding the sorts of political issues that you mentioned earlier. Can you give us an example of some of the claims that have taken place between some of the developed countries?

Nick Gallus:
Yeah. There are many examples and many are high profile. The famous case here in Australia is the case brought by Phillip Morris against Australia. And whether you call Phillip Morris an American or a Hong Kong company, which was controversial in that dispute, they're both investors from sophisticated countries investing in a country like Australia with a developed regulatory system. From personal experience, a lot of the cases that I've dealt with have been defending the government of Canada against claims by American business. Indeed, of the 40 odd claims under the North American Free Trade Agreement, sorry under the 40 odd claims under the North American Free Trade Agreement against Canada, almost all of them are by US investors where, as you say, you had investors and respondents from sophisticated regulatory environments, nonetheless resolving their dispute through investment treaty arbitration.

Nathan Landis:
As a funder, I've been involved in a number of international arbitrations, both from the investment and the commercial arenas. These cases are always complex, and with their complexity comes expense. Consequently, parties are increasingly seeking funding to fund these claims. In particular, as you mentioned earlier, these are generally companies who have single assets, or a small number of revenue-producing assets in the other country. And when there's a problem with that asset, they're either taken away through expropriation or they're otherwise impaired in how they're able to generate revenue for their company, then that creates a problem for the company in terms of its cashflow. Nick, can you give us an example of a funded treaty claim?

Nick Gallus:
Yeah, I give you a few. I should say upfront that I personally haven't been involved in funded treaty claims largely because a lot of the treaty claims I've been involved in have been on behalf of governments that typically don't use funders. But in the headlines over the last couple of years, there've been many successful claims by investors who, for example, lost their investment in Venezuela after the Venezuelan government started to nationalize resources there. A lot of the successful claimants were Canadian mining companies. Perhaps the most famous example is Cristallex, who were awarded well over $1 billion. The tribunal found that Venezuela had breached its obligations in investment treaty.

Nathan Landis:|
And Cristallex is a good example of the profile of that company I was talking about earlier where Cristallex had their primary asset in Venezuela. And once that asset had been nationalized by the Venezuelan government, Cristallex found itself with a problem in terms of its cashflow and its ability to pay for the steps that were required to enforce their rights.

Nick Gallus:
Yeah, and you see that all the time. For example, we were talking before about what's going on in Tanzania at the moment. And putting aside whether or not what Tanzania is doing is a breach of its investment treaty obligations, what you're seeing is that a number of companies have been wiped out by what's happened in Tanzania and they're reaching out to funding companies and saying, "We simply don't have the resources to obtain justice any other way."

Nathan Landis:
It's been a pleasure to talk to you today.

Nick Gallus:
Thanks for having me.

Justin McLernon:
That brings us to the end of our podcast today. Thank you very much to Nick Gallus for being our guest on Omni Bridgeway’s Beyond Hourly podcast and sharing his knowledge with our listeners.

As I mentioned at the outset, episodes of the Beyond Hourly podcast can be found on our website, www.omnibridgeway.com, and also via iTunes, Spotify and other podcast networks and I invite you to subscribe and leave us reviews. You can also access a transcript of this podcast on our website blog page. Please feel free to follow up with me, Justin McLernon, at [email protected] for any feedback, ideas or insights you have on topics we should cover on our podcasts.   We’ll be back soon with another episode. Until then, thank you for listening and goodbye.