Still standing: Investors’ ability to sue the Government under CPTPP
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was signed in March 2018 in Santiago, Chile by 11 of the 12 original Trans-Pacific Partnership Agreement (TPP) countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The United States formally withdrew from the TPP in January 2017, and so is not a member of CPTPP.
The Foreign Affairs, Defence and Trade Select Committee has now completed its examination of the CPTPP and has noted that the Government intends the treaty to be implemented through a bill. But what about the concerns with regard to the Investor State Dispute Settlement (ISDS) provisions, which became a point of contention with those groups opposing the original TPP?
This article describes the revised position and seeks to dispel some of the confusion around the ISDS provisions and who can – and cannot – sue the New Zealand Government and for what.
If you are interested in international or domestic arbitration issues, please join us for our upcoming lunchtime Litigation Forecast: International and Domestic Arbitration seminars. Register today for Wellington (3 July) or Auckland (5 July).
Can foreign investors still sue the New Zealand Government?
Critics of the original agreement claimed the TPP would undermine New Zealand’s sovereignty by restricting the Government’s ability to regulate in the public interest. The new Minister for Trade and Export Growth, Hon David Parker, sought further concessions for the CPTPP, building on the previous Minister’s work, to safeguard the ability for future governments to regulate in the public interest even if such actions could have an adverse effect on a particular investment. The end result being that the CPTPP continues to offer rights to foreign investors, including a means of settling legitimate disputes through the ISDS provisions, but with a much narrower scope for bringing such actions.
But these modifications have a quid pro quo effect. They also reduce the protection afforded to New Zealand outward foreign investment in CPTPP partner countries – where ISDS is not available, New Zealand investors must use other dispute resolution pathways, such as the host countries’ domestic legal system to resolve disputes which can be problematic.
Suspended provisions and side letters
The CPTPP narrows the scope of the ISDS provisions by:
- suspending some of the original ISDS provisions in the TPPA so they cannot be effected under the new agreement for any of the 11 countries. The suspended provisions require the agreement of all CPTPP parties before they will apply again; and
- through the use of “side letters”, which are agreements that have the same status as the CPTPP but are only between some of the CPTPP countries.
Provisions allowing claims to investment agreements and investment authorisations, as well as minimum standard of treatment in financial services have been suspended.
In the Investment Chapter of CPTPP, provisions allowing claims relating to investment agreements and investment authorisations (Investment Contracts), as well as provisions allowing claims relating to the minimum standard of treatment in financial services, have been suspended. This means that private companies who enter an Investment Contract with the New Zealand Government will not be able to use ISDS provisions if there is a dispute about that contract.
The provisions in the TPP that would have required Pharmac to make administrative changes benefitting the pharmaceutical industry have been suspended. The intellectual property provisions have also been suspended, which means that New Zealand does not need to extend the copyright term from 50 years to 70 years. This removes a significant cost for New Zealand.
Side letters and joint declaration
New Zealand has also signed bilateral agreements (Side Letters) with Brunei, Malaysia, Peru, Vietnam and Australia to restrict the use of the ISDS provisions by their nationals. As a result investors from:
- Australia and Peru have no recourse to the ISDS provisions against the New Zealand Government; and
- Brunei, Malaysia and Vietnam will first have to try to resolve any dispute with the New Zealand Government through consultation and negotiation (including good offices, conciliation and mediation). If the dispute cannot be resolved within six months through consultation and negotiation, the investor can seek the consent of the New Zealand Government to start proceedings under the ISDS provisions. If the New Zealand Government refuses to provide consent, then the government of the investor may request that consultation take place at a government-to-government level.
The side letters restricting the use of the ISDS provisions against these five CPTPP parties mean that only investors from Canada, Chile, Japan, Mexico and Singapore can initiate ISDS proceedings against New Zealand without any additional constraints. This is of particular importance as the five countries with side letters in place account for over 80% of foreign investment into New Zealand.
However, New Zealand, Canada and Chile have issued a joint declaration affirming the right of each country to regulate within its territory for legitimate policy objectives such as safety, health, the environment, public morals, social or consumer protection and the promotion and protection of cultural diversity.
So what can the New Zealand Government be sued for?
Just like the TPP, the ISDS provisions only apply to the Investment Chapter of the CPTPP. This means foreign investors can only use ISDS to enforce their rights and the obligations of the host country contained in the Investment Chapter. The purpose is to provide investors with certainty by protecting their investments from actions by governments that are grossly unfair or unjust.
The purpose is to provide investors with certainty by protecting their investments from actions by governments that are grossly unfair or unjust.
Taking into account the suspended provisions, a foreign investor can now only initiate proceedings against the New Zealand Government if the investor can show that the Government has breached one of the limited number of treaty obligations contained in the Investment Chapter. In summary, these treaty obligations include:
- Not expropriating assets without compensation;
- Not discriminating based on nationality (except where exceptions apply); and
- Not treating investments in a way that breach customary international law principles on fair and equitable treatment and full protection and security.
While the CPTPP has made further modifications to the original ISDS provisions in the TPP it is worth remembering that the TPP already had a number of safeguards to protect the ability of governments to regulate in the public interest, and these continue under CPTPP including:
- ISDS claims must be submitted before three and a half years have passed;
- Initially an investor must enter into consultation and negotiations to attempt to resolve the claim with the New Zealand Government;
- Any preliminary objections from the New Zealand Government, e.g. that the claim goes beyond a tribunal’s jurisdiction or is manifestly without legal merit, must be resolved before the full arbitration commences in order to reduce costs;
- There are also provisions that mean hearings will be open to the public, and which allow tribunals to accept submissions from experts and the public;
- The New Zealand Government cannot be sued for regulatory measures related to public education, health, social services, and decisions under the Overseas Investment Act; and
- There is a provision that allows the New Zealand Government to rule out ISDS challenges over tobacco control measures.
In addition, the TPP and now CPTPP also preserves the status of the Treaty of Waitangi. New Zealand was the only country to have specific recognition of its indigenous peoples included in the TPP, and this continues in the CPTPP. Nothing in the agreement will prevent the Crown from meetings its obligations to Māori and New Zealand’s interpretation of the Treaty will not be subject to the dispute settlement mechanisms.
The TTP and CPTPP preserve the status of the Treaty of Waitangi.
Where to next?
The CPTPP will enter into force 60 days after at least six of the CPTPP countries have completed their domestic legal procedures and notified the depositary country (New Zealand) of this.
New Zealand aims to be among the first countries to complete its domestic requirements. This would mean making the legislative changes that are required to comply with CPTPP obligations. We understand the Government intends to introduce legislation in Parliament later this year to enable New Zealand to ratify the CPTTP before the end of 2018.
Interestingly, the Select Committee has also noted that it has been advised by the Ministry of Foreign Affairs and Trade that the Government will not include ISDS provisions into future trade agreements.
About the authors
Daniel Fielding and Kalyani Dixit are members of the Arbitration team within the National Disputes Resolution Division at MinterEllisonRuddWatts. Daniel has recently completed his Master of Laws in International Arbitration and Dispute Resolution at the National University of Singapore.
Disclaimer: This article has been drafted using public information produced by the Ministry of Foreign Affairs and Trade. The information contained in this publication is intended as a guide only and is not legal advice.
Who can help
Special Counsel - Dispute Resolution and Litigation
Fiona is a general commercial litigation and arbitration lawyer. She leads the Arbitration team within our National Disputes Resolution Division and has a wealth of experience in working with clients to effectively resolve complex and international disputes across a range of industry sectors. Industries that Fiona has experience in include natural resources, food safety, financial services, telecommunications and insurance. She also advises on anti-bribery and corruption issues and has acted for receivers and liquidators of Ponzi schemes.
Fiona worked overseas for five years at Herbert Smith (now Herbert Smith Freehills) in London and Hong Kong, and has also spent a number of years working at another major New Zealand law firm.
Fiona completed an LLM at Harvard Law School in 2002. She also spent a year seconded by the Harvard Sussex Program working as a legal researcher at the Organisation for the Prohibition of Chemical Weapons in The Hague.
Partner - Dispute Resolution and Litigation
Oliver is an experienced general litigator and specializes in handling complex commercial litigation, and competition, regulatory and consumer law matters.
Oliver advises on contentious and non-contentious aspects of competition, regulatory and consumer law. He advises on mergers and acquisitions, restrictive trade practices, unilateral conduct and regulation. He advises clients in Commerce and Fair Trading Act investigations and with their interactions with the commercial regulators. He advises on front-end compliance and, in the consumer law area, has represented clients before the courts and before the Advertising Standards Complaints Board.
Chambers Asia-Pacific 2018 describes Oliver as “a well-reputed competition and consumer law specialist, with one client praising his ‘expert strategic advice on engagement with competition and consumer regulators.’” He is also a published contributor to publications such as “The Private Competition Enforcement Review“.
Partner - Construction
Janine is a specialist construction, property and projects lawyer who acts on the full spectrum of construction projects and property disputes. She has particular experience in claims under the Public Works Act 1981 (for land acquisition relating to development) and mid-project and post-project phases of construction. Janine is known for her pragmatic approach, adopting either litigation and/or dispute resolution to achieve a commercially-effective outcome for her clients.
Janine also has significant experience in landlord and tenant obligations and contentious rent review disputes. She regularly appears in various dispute forums.
Named Young Private Practice Lawyer of the Year at the 2015 New Zealand Law Awards and up and coming in 2016 Chambers directory, Janine is actively engaged in thought leadership on issues impacting the property and construction industry. Janine regularly contributes to a number of publications and presents widely on complex construction and property issues.
Janine lectures ‘Law for Construction” in the Masters of Project Management programme at AUT University, is a member of the New Zealand Society of Construction Law and a member of the Building Advisory Panel to MBIE.
Senior Associate - Employment and Public Law
Daniel advises clients on a range of litigious and non-litigious matters in the areas of general employment (including health and safety and immigration), public law, regulatory affairs, public policy and law reform.
Acting for both public and private sector clients, Daniel has a solid understanding of clients’ issues in the areas of statutory and regulatory compliance, judicial review, effective consultation, and in managing regulatory, commercial and reputational risk.
In addition, Daniel brings a strong commercial understanding to problems having commenced his legal career with the firm in our Corporate team, allowing him to find pragmatic and commercial solutions to minimise risk and create opportunities for our clients.
Daniel has broad dispute resolution expertise to assist clients in achieving effective and cost-efficient outcomes, from negotiation and mediation to arbitration and litigation in a variety of forums. He also frequently undertakes investigations and compliance audits for clients. Daniel maintains an interest in international arbitration and trade disputes.
Aside from contributing to a range of firm publications, Daniel has recently published the following:
- “Warrior or problem solver – what role should lawyers play in conflict resolution?” (2018) Asian JM
- “If two heads are better than one – can mediation strengthen the effectiveness of international commercial arbitration?” in Contemporary Issues in Mediation – Volume 3 (Joel Lee and Marcus Lim gen eds) (Singapore: World Scientific Publishing, 2018)
- Balancing the Right to Regulate – what can be learnt from the TPP and the relationship between FET and MFN provisions? (2017) (unpublished LLM thesis, University of Singapore, archived at the C J Koh Law Library, National University of Singapore)
Prior to joining MinterEllisonRuddWatts, Daniel worked in a number of public affairs and corporate communication roles including some time in the office of the former Prime Minister, the Rt. Hon Sir John Key. This allowed Daniel to develop a unique set of skills that also traverses legal, policy and reputational advice.