Australian business figure Clive Palmer is suing the Australian government for almost 300 billion dollars in an international tribunal, after losing a case against the Western Australian government, he went all the way to the Supreme Court.
The High Court is intended to be the ultimate arbiter of Australian legal disputes. But in 2019, while at odds with the WA government, Palmer transferred ownership of his two main Australian companies offshoreeventually to a company he founded in Singapore, Zeph Investments Pte Ltd.
As a Singapore-based company, Zeph believes it is able to take action against the Australian government that Australian-based companies cannot, using an obscure provision of the ASEAN-Australia New Zealand Free Trade Agreement.
Why does he think it would work?
Palmer lost in the Supreme Court
First, let’s see what’s at stake.
In 2002, Palmer’s two companies entered into an agreement with the WA government to explore, mine and process iron ore in the Pilbara region, known as the Balmoral South Iron Ore project.
The two sides fell out, and in 2020, Palmer sued the state for $27.8 billion. In 2022, the WA government rushed by legislation that the state indemnified any money he might owe Palmer, meaning he would get nothing.
Palmer appealed to the Supreme Court, and lost in a unanimous verdict.
Read more: Clive Palmer vs (Western) Australia. He could survive a Supreme Court loss if his company turns out to be “foreign.”
In his new guise as CEO of a Singapore-based company, Palmer has raised the bar 200 billion dollars (approximately A$300 billion) – an amount that WA Prime Minister Mark McGowan says is “A$11,500 for every person in Australia”. The demand includes US$10 billion for “moral damages”.
By comparison, A$300 billion is in the ballpark of the A$268 billion to $368 billion Australia will pay for nuclear submarines over the next three decades.
Palmer hired the former Australian Attorney General Christian doorman as part of his legal team. The clause that Porter and the rest of the team will try to use is known as the Investor-State Dispute Settlement (ISDS) clause.
Luke Coch/AAP
Investor-to-state dispute settlement clauses allow foreign (but not local) investors to seek redress from governments if they allege that a change in law or a government decision has reduced their future profits.
I try again, as a Singaporean
ISDS clauses were originally designed in the postcolonial period to compensate foreign investors from countries that claimed to have the rule of law for having their assets appropriated by developing countries that were perceived to have less developed legal systems.
But its use has expanded to include concepts such as “indirect expropriation”, “minimum standard treatment” and “legitimate expectations‘, which allow foreign investors to sue on the grounds that government intervention reduced the value of their investments or fell short of their expectations at the time they invested.
US tobacco company Philip Morris tried a similar trick when it sued the Australian government over Australia’s plain packaging law.
Read more: When even winning is losing. The surprising cost of beating Philip Morris for plain packaging
While Philip Morris was unable to sue using the Australia-US Free Trade Agreement (which does not contain an ISDS provision), it moved ownership of its Australian branch to Hong Kong and sued using a Hong Kong treaty, finally to fail. However, Australia was left with a legal bill of A$24 million, only half of which was recovered.
The tool used by big tobacco
Abroad, ISDS clauses have been used to enable companies to take action against measures to reduce carbon emissions, as well as public health measures. Denmark and New Zealand seem to have designed their fossil fuel phase-out plans specifically to minimize their exposure to ISDS clauses.
Unlike normal court proceedings, ISDS awards lack safeguards such as an independent judiciary (ISDS arbitrators can continue to act for clients in other ISDS cases) or the need to consider precedents or allow appeals. This means decisions are inconsistent and the outcome of Palmer’s case is unpredictable.
Read more: Businesses prepare for prosecution as pandemic exposes trading errors
Growing criticism of the clauses led to them being excluded from recent Australian trade deals, including those with the United Kingdomthe European Union and nations bordering the Pacific Ocean.
Labor recently confirmed that policy Exclude ISDS clauses from all new trade agreements and review their inclusion in existing agreements.
Palmer’s case, and the millions of dollars and years of effort it could cost Australia even if he ultimately fails, makes the removal of these clauses more urgent.
