Great: Now Wall Street Is Funding Speculative Corporate Sovereignty Claims For A Share Of The Spoils

from the this-is-fine dept

Techdirt first wrote about corporate sovereignty four years ago -- although we only came up with that name about a year later. Since then, a hitherto obscure aspect of trade deals has become one of the most contentious issues in international relations. Indeed, the investor-state dispute settlement (ISDS) measures in both TPP and TTIP played an important part in galvanizing resistance to these so-called "trade" deals, and thus in their defeat, at least for the moment (never say "never".)

Corporate sovereignty may be a tough sell in new trade deals, but it is still lurking in plenty of existing agreements. For example, a post on the Sierra Club blog points out that two countries, Colombia and Romania, are being sued using ISDS clauses because of their refusal to issue mining permits:

Both mines would require huge quantities of cyanide and threaten watersheds used by millions of people for drinking water. One would damage a unique, legally protected ecosystem and the other would destroy an ancient, UNESCO-nominated settlement. Both have been opposed by scientific bodies, protested by tens of thousands of people, and restricted by domestic courts.

The use of corporate sovereignty to trump health and environmental concerns is nothing new. What is noteworthy here is the following:

Both ISDS claims are being funded by the same Wall Street hedge fund -- Tenor Capital Management. Tenor helps cover the companies' legal costs in exchange for a cut of any award. These speculative ISDS bets have already paid off for Tenor. The hedge fund won big in April 2016 when it secured 35 percent of a $1.4 billion ISDS ruling against Venezuela, a return of over 1,000 percent on the $36 million that Tenor had provided for the legal costs of the company that brought the case.

That is, the rewards of winning a corporate sovereignty case are so great that hedge funds are starting to fund them speculatively with no direct connection to the ISDS dispute other than providing money to initiate and pursue the claim. As the Sierra Club points out:

The risks of such arrangements, known as "third-party funding," are clear: When Wall Street speculates on the outcome of ISDS cases, it inflates the number of corporate suits against governments, leading to higher costs for taxpayers and higher risks for policymakers that challenge harmful investments.

Doubtless, defenders of the corporate sovereignty system will claim that the hedge fund's willingness to invest money is actually a good thing, since it means that even impecunious companies can enjoy their "right" to sue a government. But the new interest of Wall Street in ISDS underlines the unfair asymmetry of the system:

Because only corporations, not governments, can launch ISDS cases, governments have no equivalent funding sources, as they have no potential winnings to leverage. In Costa Rica -- which is also on the receiving end of a third-party-funded ISDS case relating to an environmentally destructive gold mine -- the Attorney General's office has an annual budget of only $17 million. In Bolivia -- one of the poorest countries in the Western Hemisphere, which faces a third-party-funded ISDS case relating to a silver mine -- the Attorney General's office has a budget of $12 million.

This is a crucially-important point about corporate sovereignty: governments never win ISDS cases; at best, they just don't lose them. All the upside is with the corporates that bring the claim, and all the downside with nations that are defending their actions and regulations. The new wave of third-party funding will accentuate that skewed nature, and make corporate sovereignty even more of a scourge than it is today, regardless of whether it is ever included again in any new deal.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Hide this

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: corporate sovereignty, isds, litigation finance, nafta, wall street


Reader Comments

Subscribe: RSS

View by: Time | Thread


  1. identicon
    Anonymous Coward, 4 Jan 2017 @ 11:12pm

    Questioin here

    How is this not champerty and maintenance?

    link to this | view in thread ]

  2. identicon
    glyn moody, 5 Jan 2017 @ 12:11am

    Re: Questioin here

    Good question; presumably because ordinary laws that we lesser mortals have to follow don't apply to supranational ISDS suits - which is part of the problem.

    link to this | view in thread ]

  3. identicon
    Anonymous Coward, 5 Jan 2017 @ 1:51am

    I wonder if it's possible for countries like Bolivia to speculatively fund ISDS cases against the US? Then the profits could be used to defend against other ISDS cases.
    Maybe then the USTR will not be so happily including ISDS in new trade agreements...

    link to this | view in thread ]

  4. identicon
    Anonymous Coward, 5 Jan 2017 @ 2:05am

    Re:

    Winning against the US is one thing, getting them to pay when they have the bigger army and nukes is a very different thing.

    link to this | view in thread ]

  5. identicon
    Anonymous Coward, 5 Jan 2017 @ 3:48am

    Re: Re:

    In which case: We will pay our ISDS fine when the US pays theirs?

    link to this | view in thread ]

  6. identicon
    Yes, I know I'm commenting anonymously, 5 Jan 2017 @ 3:57am

    privilege on the nation-scale

    Unfortunately for Colombia and Romania, they cannot take the US approach (simply not pay) since they do not as strong a base in international politics.

    link to this | view in thread ]

  7. icon
    Richard (profile), 5 Jan 2017 @ 4:19am

    Re: Re:

    Winning against the US is one thing, getting them to pay when they have the bigger army and nukes is a very different thing.

    As Antigua found out! www.antiguawto.com

    link to this | view in thread ]

  8. icon
    JustMe (profile), 5 Jan 2017 @ 4:20am

    Re: champerty

    You, sir or ma'am, have select the TechDirt SECRET WORD OF THE DAY!!! You win one hundred dollars.

    http://izquotes.com/quotes-pictures/quote-say-the-secret-word-and-win-a-hundred-dollars-grou cho-marx-308116.jpg

    link to this | view in thread ]

  9. icon
    Richard (profile), 5 Jan 2017 @ 4:22am

    Re: privilege on the nation-scale

    Of course you do have other options - at the cost of becoming an international pariah - as countries like Iran, North Korea etc know well.

    link to this | view in thread ]

  10. icon
    Ninja (profile), 5 Jan 2017 @ 5:01am

    Sadly these agreements will plague the landscape for a while. The bright side is that the new agreements being pushed are facing severe opposition due to these abusive clauses. And the ones that eventually pass will be much better than the deals currently valid.

    link to this | view in thread ]

  11. identicon
    Anonymous Coward, 5 Jan 2017 @ 5:14am

    How is corporate sovereignty any different from sovereign citizen?

    I think most people are in agreement that sovereign citizen claims are silly. Why do we entertain corporations with the same silly arguments?

    link to this | view in thread ]

  12. identicon
    Anonymous Coward, 5 Jan 2017 @ 6:59am

    Re: Re: privilege on the nation-scale

    You either have nuclear weapons, or you're the US's bitch.

    link to this | view in thread ]

  13. identicon
    TripMN, 5 Jan 2017 @ 7:32am

    Word of the day

    I hadn't heard of champerty and maintenance before today (I'm not a lawyer), but reading up on the topic is a little disconcerting. The discussion seems to go like this:

    Champerty and maintenance (and barratry) are old laws to bar vexatious litigation in the age of robber barons. By the 1800s these laws were outdated and past due since access to courts are a right and there are other things (bars and ethics) in place to stop bad litigation.


    And yet bad litigation and trolls still exist. So why can't someone go after those bankrolling the bad cases? If the items in place to stop abuses was actually effective, wouldn't the Prenda lawyers have been brought before some bar in some state well before the court sanctioned them? Shouldn't it be anti-ethical from a lawyer/bar perspective to knowingly sue a sovereign state for making laws that protect its people and environment?

    From my viewpoint, the one profession that is supposed to have the most/best rules about ethics seems to often be the least ethical in practice.

    link to this | view in thread ]

  14. identicon
    Anonymous Coward, 5 Jan 2017 @ 7:47am

    Re:

    "And the ones that eventually pass will be much better than the deals currently valid."

    You can't know that. I have seen many things go from bad to worse in the very effort to FIX THE BAD! Especially when you are dealing with the globalist elite. They spend all their time playing the hoodwink games and we citizens spend almost all of our time buying them.

    link to this | view in thread ]

  15. identicon
    Annonymouse, 5 Jan 2017 @ 7:53am

    Hmmm

    If these corporate types and their backers are effectively damaging property and people can they not then be held responsible for those actions and punished?
    Not the companies but the suits themselves.
    So what if they have the death penalty, so does the states.

    link to this | view in thread ]

  16. identicon
    Anonymous Coward, 5 Jan 2017 @ 8:11am

    Re: Word of the day

    ".. there are other things (bars and ethics) in place to stop bad litigation."

    Ethics ... Hahahahaha - good one.


    Just because a law was put on the books along time ago, does not mean it is no longer useful. For example, the laws against murder.

    link to this | view in thread ]

  17. icon
    @ISDS_Guru (profile), 5 Jan 2017 @ 10:14am

    Ignorance is Bliss, One Supposes

    Seriously?

    I'm a little pressed for time, so let's just take a quick boo at the last two paragraphs:

    "Because only corporations, not governments, can launch ISDS cases, governments have no equivalent funding sources, as they have no potential winnings to leverage."

    -> Well, no, it is obviously false to state that "only corporations" can launch ISDS cases. In my experience, the plurality of claims have been made by individuals.

    -> And, no, it is not accurate to suggest that governments cannot, or do not, take advantage of the products offered by these financial service providers, including insurance products regarding award amounts, or the potential for cost allocations as part of an award.

    "This is a crucially-important point about corporate sovereignty: governments never win ISDS cases; at best, they just don't lose them. All the upside is with the corporates that bring the claim, and all the downside with nations that are defending their actions and regulations. The new wave of third-party funding will accentuate that skewed nature, and make corporate sovereignty even more of a scourge than it is today, regardless of whether it is ever included again in any new deal."

    -> Only the most statist of mindsets could conceive of this argument. The juxtaposition of "corporations" with "governments" is the first 'tell.'

    -> Also implicit in the claim is the ludicrous premise that everything governments do is good and everything corporations might do in opposition to governments is bad.

    -> Surely the appropriate question would be whether society "wins" by virtue of having: (1) rules that prevent/limit unfair treatment of foreign investment; and (2) a dispute settlement mechanism for the prosecution of claims when such rules have been breached.

    link to this | view in thread ]

  18. identicon
    Anonymous Coward, 5 Jan 2017 @ 10:26am

    Never understood why the Venezuelan government didn't just invite Tenor to collect the money in person and just kill them.

    They've done shit like this before, and if they killed the heads of TCM, who's left to collect?

    it's not like sanctions would make venezuelan's economy collapse any worse than it already has

    link to this | view in thread ]

  19. icon
    @ISDS_Guru (profile), 5 Jan 2017 @ 10:29am

    Re: Word of the day

    The common law concept of champerty and maintenance is rooted in the principles of good faith and judicial economy. In any given country, the State provides certain services, such as a military, police force, lawmakers, and courts. Because courts are maintained at the public's expense, the time and resources they take to decide cases essentially becomes "public time," financed by taxpayers.

    It was within this context that champerty and maintenance rules arose. When a third party to a dispute finances it - not merely to assist the claimant, or defendant, in seeing justice done, but to profit from the venture - the argument could be made that the third-party funder is unjustly enriched, because his venture requires using up a scarce, public resource.

    Now arguments could, and have been, made to the contrary, which is why champerty and maintenance rules have met different fates in different common law countries, but none of that matters for this discussion.

    Champerty and maintenance rules aren't relevant in the investor-state arbitration context because cases are heard before ad hoc, international tribunals, rather than domestic courts. These tribunals are always funded by the parties to the dispute, and they have the authority to apportion costs against the losing party. Hence, there is no issue of a limited public resource being exhausted for private profit.

    link to this | view in thread ]

  20. identicon
    Annie, 5 Jan 2017 @ 12:17pm

    Re: Ignorance is Bliss, One Supposes

    Your argument is nonsense.

    Not only are you seeing things that aren't there, you're seriously misusing political terms. It's not 'statist' to point out serious flaws in the current litigation structure that are having serious negative impacts for multiple counties.

    As for the 'appropriate question' - did you even read the article? The existing mechanism is highly prejudiced towards foreign investment and doesn't actually settle disputes at all. Governments are rejecting proposals from businesses due to strong evidence of damage to the nation and serious concerns from their constituents - which are the appropriate things for governments to be concerned about! - and corporations are suing them to override the will of the people.

    link to this | view in thread ]

  21. identicon
    I Love Capitalism, 5 Jan 2017 @ 12:42pm

    Re: Word of the day

    Champerty and maintenance (and barratry) are old laws to bar vexatious litigation in the age of robber barons.

    You write like those were bad things.

    link to this | view in thread ]

  22. icon
    Almost Anonymous (profile), 5 Jan 2017 @ 12:57pm

    Bad eyesight?

    Did anyone else read it as "Terror Capital Management" at first glance? Oddly appropriate, even after I recognized my mistake.

    link to this | view in thread ]

  23. icon
    That One Guy (profile), 5 Jan 2017 @ 1:57pm

    Spin baby spin

    -> Well, no, it is obviously false to state that "only corporations" can launch ISDS cases. In my experience, the plurality of claims have been made by individuals.

    Great, what does that have to do with the statement that governments can't bring corporate sovereignty cases against companies or individuals, while the latter is not the case? If governments can bring corporate sovereignty cases against companies and/or individuals then by all means share examples of that happening, because that would certainly be news to me.

    -> And, no, it is not accurate to suggest that governments cannot, or do not, take advantage of the products offered by these financial service providers, including insurance products regarding award amounts, or the potential for cost allocations as part of an award.

    So governments can 'take advantage' by mitigating some of the potential damage, what does that have to do with the statements regarding the fact that investors are now willing to fund sovereignty cases, treating them as investments towards future profits, whereas the government has no such 'luxury'?

    -> Only the most statist of mindsets could conceive of this argument. The juxtaposition of "corporations" with "governments" is the first 'tell.'

    Ah gotta love the classics, 'if you can't counter the argument/statement, insult the one making it'.

    -> Also implicit in the claim is the ludicrous premise that everything governments do is good and everything corporations might do in opposition to governments is bad.

    Almost as ludicrous as the premise that everything corporations do is good and everything governments might do in opposition to them is bad.

    -> Surely the appropriate question would be whether society "wins" by virtue of having: (1) rules that prevent/limit unfair treatment of foreign investment; and (2) a dispute settlement mechanism for the prosecution of claims when such rules have been breached.

    Rules against 'unfair' treatment are fine, when those 'rules' are allowed to completely ignore a country's laws then they stop being fine.

    Corporate sovereignty is a 'solution' to a self-fixing problem, one that makes it much, much worse.

    If a country offers rules that are unacceptable to companies, don't do business in that country.

    If a country breaks the rules and screws over a country, take it to the country's legal system(otherwise known as a 'dispute settlement mechanism', the thing you were calling for), and if that fails stop doing business in that country.

    If a country gets a reputation for screwing over countries then smart companies will stop doing business there, starving the country of revenue that they otherwise would have made, and forcing them to start acting better if they want said revenue back.

    link to this | view in thread ]

  24. icon
    Eldakka (profile), 5 Jan 2017 @ 4:46pm

    Re: Questioin here

    OK, I just did a quick read up of champerty and maintenance on wikipipedia. According to that font of absolute truth, while these acts in my opinion do fall under the definition (as provided by wikipedia!) of champerty and maintenance, the problem is that, also according to wikipedia, it is no longer a crime to do so in many jurisdictions. Therefore it doesn't matter whether or not it is that, because if it is it's not legally wrong to do so.

    link to this | view in thread ]

  25. identicon
    Anonymous Coward, 5 Jan 2017 @ 5:56pm

    Re: Re: Word of the day

    I think good faith went out the window long ago.

    link to this | view in thread ]

  26. identicon
    Anonymous Coward, 6 Jan 2017 @ 2:07am

    Re: Re: Re:

    Size matters.....

    link to this | view in thread ]

  27. icon
    Craig Welch (profile), 10 Jan 2017 @ 7:43pm

    Re: Re: Re:

    Keeping in mind, of course, that the case to which you point is not an ISDS dispute.

    link to this | view in thread ]


Follow Techdirt
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Discord

The latest chatter on the Techdirt Insider Discord channel...

Loading...
Recent Stories

This site, like most other sites on the web, uses cookies. For more information, see our privacy policy. Got it
Close

Email This

This feature is only available to registered users. Register or sign in to use it.