Parallel Justice – How the investment protection system undermines judicial independence in Latin America
published: March 2021
One of the main arguments that has been used to justify the creation of the investment arbitration regime is that domestic courts are biased and inadequate to adjudicate investor-state disputes. The response to this alleged problem was the creation of a parallel “justice” regime established through a network of 300 Free Trade Agreements and some 2,500 investment protection treaties. These international agreements include the investor-state dispute settlement (ISDS) mechanism that gives foreign investors the right to sue governments before international arbitration tribunals, without first needing to exhaust domestic courts.
This report presents two central arguments:
1. International arbitration tribunals are far less impartial and independent than court systems. Indeed, the nature of the arbitration system makes it inherently biased in favour of foreign investors. The report presents evidence that:
- Arbitrators, unlike judges, do not have to comply with institutional guarantees of impartiality and independence.
- In investment arbitration there is no recourse to appeal, thus eliminating one of the checks and balances.
- The cost of investor-state arbitration is higher than a trial in national courts.
- The investment protection regime does not provide equal access to justice, but discriminates between local and foreign investors.
2. Investment arbitration undermines the judiciary. At best, the investor-state dispute settlement system displaces domestic courts, and at worst, it undermines decisions made by domestic judges. Five scenarios and examples are presented that illustrate this situation in Latin America:
2. Investment arbitration undermines the judiciary. At best, the investor-state dispute settlement system displaces domestic courts, and at worst, it undermines the decisions made by domestic judges. Five scenarios and examples are presented that illustrate this situation in Latin America:
- Foreign investors suing states over the decisions of their national courts, as has occurred in the cases of Eco Oro v. Colombia, Infinito Gold v. Costa Rica and Kapes v. Guatemala.
- International arbitral tribunals ordering governments to overturn rulings of national courts, violating the principle of separation of powers.
- Foreign investors bypassing domestic courts.
- Foreign investors using arbitration tribunals to evade accountability for human rights, environmental and labour rights violations.
- Foreign investors prosecuted for criminal activities seeking to escape justice by using the investment protection regime.
Against this backdrop, the following recommendations are offered:
- That domestic courts, despite their current shortcomings, be recognised as suitable for resolving disputes between foreign investors and states.
- Governments should not sign new investment protection agreements that include ISDS and should denounce existing agreements that include ISDS.
- Move forward with comprehensive audits of investment protection agreements.
