The CPTPP revisited

Last month, the government of the United Kingdom announced that it had signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) agreement, joining a trade bloc of countries located around the Pacific Rim that includes Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore and Vietnam.

The accession of the UK to the CPTPP appears, at first glance, as economically pointless as it is geographically bewildering. The UK already has trade agreements with every member of the CPTPP except Malaysia: its own analysis is that joining the CPTPP could have a positive impact on GDP of 0.06% “in the long run”. But, of course, the purpose of the exercise is political, not economic – the British government isn’t especially concerned about making it easier for Malaysian rubber products to enter the UK, but it is busily attempting to demonstrate that it can compensate for the economic harm caused by Brexit by embracing agreements with other parts of the globe.

For a moment it appeared possible that this piece of gestural treaty-making could have an unintended consequence, because the CPTPP contains an investor-state dispute (“ISDS”) provision, and there has never before been an ISDS agreement between Australia and the UK. Under the ISDS provision in the CPTPP (and never venture into this area of law if you’re afraid of an acronym), each government makes promises to investors from each other country that their investments will receive a particular standard of treatment. There are protections against nationalisation (or equivalent measures) and a promise of “fair and equitable treatment”. If the promises are not kept, an investor may sue the state for damages in an international arbitration. One effect of an ISDS clause is often to give foreign investors a higher degree of protection than domestic entities – in Australia, for example, there is no requirement than any administrative or legislative act of the government is “fair and equitable”. And another effect is that the availability of ISDS gives teeth to the promises made by governments in trade and investment agreements, because those promises can be enforced.

Anyway, there’s still no ISDS agreement between the UK and Australia, because the Department of Foreign Affairs and Trade was quick to announce that there will be a side letter between the two countries excluding the operation of the ISDS clause. That was no surprise – ISDS was also excluded from the Free Trade Agreement between the UK and Australia that entered into force in May this year. Which raises the question of whether the promises made to investors in those two agreements carry any weight at all.

In Australia, the general approach to international treaties was explained by the High Court in Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273. There, Mason CJ stated that “It is well established that the provisions of an international treaty to which Australia is a party do not form part of Australian law unless those provisions have been validly incorporated into our municipal law by statute… So, a treaty which has not been incorporated into our municipal law cannot operate as a direct source of individual rights and obligations under that law.”

There is, and will be, no legislation incorporating Australia’s treaty obligations under the CPTPP into domestic law. What that means is that if an investor from the UK has an investment that has been treated in a manner that is inconsistent with the terms of the CPTPP, the treaty breach does not create a cause of action that the investor can pursue in an Australian court.

Does that mean that an investor who receives unfair treatment in Australia would have no remedy at all for a breach of a promise made in the CPTPP? It’s a point that has never been tested, but at least in theory it’s possible to imagine circumstances in which an aggrieved investor could sue under the law relating to misrepresentation. Australian law recognises a wide range of remedies when a party makes a statement or promise intending that it will be relied upon, and those principles may, in certain circumstances, bind the Commonwealth. It’s certainly conceivable that a British investor who has made an investment relying upon a promise made by Australia in the CPTPP could seek damages in an Australian court if the promise were not kept. An action of that kind would face several hurdles and would be difficult to sustain, but perhaps not impossible if the investor genuinely made an investment in Australia relying upon the promises made to investors by the Australian government in the UK-Australia Free Trade Agreement or the CPTPP. Dealing with ISDS claims have been endlessly inventive in recent years, and the stakes they play for are often extremely high: it may not be too long before a novel claim of this kind appears in an Australian court.