Australian mining tycoon Clive Palmer is currently in a legal dispute with the Australian government and seeking an astronomical $300 billion in damages due to an iron ore project that has been delayed.
The complex arbitration case has attracted the attention of UNSW Associate Professor Jonathan Bonnitcha.
Drawing on his interdisciplinary approach and vast expertise in international economic governance and investment treaties, A/Prof. Bonnitcha has been instrumental in clarifying the finer points of the case.
His previous work, including the article 'Can Clive Palmer use Investor-State Dispute Settlement to get what the High Court wouldn't give him?' underscores his deep understanding of the matter.
What is the case about?
A/ Prof Jonathan Bonnitcha: The case relates to a dispute between Clive Palmer and Australia about developing the Balmoral South Iron Ore Project.
In 2012, the Western Australian government rejected Palmer's proposal, which he claimed breached their Government Agreement.
An Australian arbitration process was supposed to resolve the dispute and mostly favoured Palmer's claims.
However, in 2020, the West Australian Parliament passed the Amending Act, which stripped Palmer of his rights relating to the dispute and arbitration proceedings. Palmer challenged the Act's validity in the High Court but lost.
Palmer lost in Australia’s highest court – isn’t that the end of things?
A/ Prof Jonathan Bonnitcha: Although Clive Palmer lost in the Australian High Court, he still has other options under international law.
Australia is a party to 25 treaties related to foreign investment protection, such as the ASEAN-Australia-New Zealand Free Trade Agreement.
These treaties have two essential components. First, they offer legal protections against the unfair treatment of foreign investors. Secondly, each state party agrees in advance to participate in the international arbitration of claims made by foreign investors from other state parties. This arbitration system is called investor-state dispute settlement (ISDS).
Isn’t Clive Palmer an Australian? How can he bring a case against Australia under a treaty to protect the foreign investment?
A/ Prof Jonathan Bonnitcha: It seems that ownership of Palmer’s Australian companies, including Mineralogy, was transferred to a Singaporean company – Zeph Investments – in 2019 (or possibly as early as 2017).
It appears that Zeph Investments is also owned and controlled by Clive Palmer. Technically, Zeph Investments, not Palmer or his Australian companies, is bringing the case against Australia to ISDS.
It may seem bizarre that a treaty for the protection of foreign investors ends up allowing what is, in essence, an Australian investor to bring a case against Australia to international arbitration. This possibility follows from the way that the treaties are drafted.
How do ISDS proceedings work?
A/ Prof Jonathan Bonnitcha: ISDS differs from court proceedings because it involves a specially appointed tribunal dealing only with one dispute.
The investor and the respondent state (e.g. Australia) each choose an arbitrator, and together they select a third arbitrator to preside over the case.
Unlike court proceedings, ISDS is usually conducted privately. The tribunal makes a final and binding decision and dissolves once the final award is issued.
The options to review or appeal the decision are limited. Powerful mechanisms enforce the tribunal's decision. If a state refuses to pay the required compensation, the investor can seize state assets in almost any country to recover the balance owed.
What are Palmer’s prospects of success in the case?
A/ Prof Jonathan Bonnitcha: ISDS tribunals are unpredictable because each has a unique combination of arbitrators, and the case documents are not public.
Moreover, tribunals are not bound by precedent, so predicting the outcome is challenging. However, ISDS tribunals are generally sympathetic to foreign investor claims relating to retroactive legislation interfering with ongoing or concluded legal proceedings.
Palmer has a realistic chance of success in this case. However, Australia can argue that Palmer transferred his assets to Zeph Investment after the rejection of the Balmoral South proposal and that the WA Amending Act preserves Palmer's underlying mining rights.
Palmer is seeking almost $300 billion in compensation. Could he be awarded such a large amount?
A/ Prof Jonathan Bonnitcha: No. Even if he were successful, Palmer could not be awarded anything like $300 billion in compensation.
In the Yukos case, the most significant compensation awarded in ISDS proceedings was $US50 billion, which involved very different facts. Nevertheless, if successful, Palmer does have a chance of receiving payment in the hundreds of millions of dollars or even, possibly, in the low billions.
What are the broader implications of the case?
A/ Prof Jonathan Bonnitcha: The case will likely spark debate over using ISDS provisions in Australia's trade and investment agreements.
There is no apparent rationale for providing Australian businesspeople who have lost in the High Court with further international options to pursue cases against the Australian government. The policy reasoning behind ISDS appears to be restricted to curbing instances of state misconduct, particularly in cases involving the seizure of assets belonging to foreign investors.
Additionally, the case highlights the need for more transparency in ISDS proceedings and the problem of increasing compensation awards in ISDS over recent years.
What happens next?
A/ Prof Jonathan Bonnitcha: ISDS is a slow process. It will likely be several months until the tribunal's first hearing and several years to a final decision in the case.