Australian mining companies are increasingly using ISDS processes and are being awarded billions based on dubious calculations of potential lost profits by unaccountable international tribunals.

ISDS processes, effectively a right by corporations to sue governments, became notorious in Australia when the US corporation the Philip Morris tobacco company shifted some assets to Hong Kong and used an Australia-Hong Kong investment treaty to sue the Australian government over its tobacco plain packaging laws.

Philip Morris Asia claimed billions in compensation as a result of the new laws but eventually the claim was dismissed, although Australia still had to pick up the tab for $12 million in legal costs.

ISDS processes enable foreign (but not local) investors to bypass national courts and sue governments for compensation in international tribunals if they can argue that a change in a domestic law or policy has reduced the value of their investment, or that they were not consulted about the change.

While ISDS processes give additional legal rights to international corporations that already have enormous market power, they place no obligations on those corporations to abide by human rights or environmental standards.

This has led to many cases where the pursuit of profit is at odds with health and environmental regulation.

While these cases are often sent to arbitration to be resolved, the arbitrators are not independent judges but practising advocates with potential, or actual, conflicts of interest.

Other criticisms of the process include a lack of transparency and the length of proceedings, high legal costs, astronomical awards and lack of precedents and appeals leading to inconsistent decisions.

There are now 1,023 reported ISDS cases globally. As of October 2019, 46 cases had awarded more than US$100 million, while 10 cases had awarded more than US$1 billion.

Investment law expert George Kahale has noted the growth of third-party funding of ISDS cases, in which speculative investors fund cases in return for a share of the claimed compensation.

Professor Kahale argues that such funding fuels the growth of “surrealistic” claims and are “more about making money than obtaining justice”.

And now Australian mining companies are increasingly using investor rights in trade and investment agreements to sue developing countries. All of the seven recorded cases from Australia involve mining companies.

On 10 July, the Canadian company announced that its Australian subsidiary, Barrick Australia Pty Ltd was using the ISDS in a bilateral investment treaty between Papua New Guinea and Australia to claim compensation for the PNG government’s refusal to grant an extension of the company’s expired 30-year lease at the controversial Porgera gold mine.

Canada does not have an investment treaty with PNG, so Barrick’s use of an Australian subsidiary appears to be an exercise in forum-shopping.

The Porgera gold mine has a documented record of decades of environmental and human rights abuses.

Human rights experts have strongly argued that the company should tackle these abuse claims before regaining its social licence to operate.

Yet despite its record, Barrick is seeking compensation because its lease has not been extended. Barrick could claim for huge losses of expected future profits.