600+ Groups Warn 'Unprecedented' Wave Of Corporate Lawsuits Could Imperil Global Fight Against Covid

"A spate of cases now could result in a 'regulatory chilling' effect, in which governments water down, postpone, or withdraw actions to tackle the pandemic from the fear of such payments, which could be deadly."

by Jake Johnson, staff writer

More than 600 civil society groups from 90 countries have published an open letter urging world governments to take action to prevent an "unprecedented" and potentially disastrous wave of lawsuits by foreign corporations seeking taxpayer compensation for profits lost to policies enacted in the fight against Covid-19.

As Common Dreams reported in May, prominent corporate law firms in the U.S., Spain, and other major nations have in recent weeks openly discussed potential opportunities for companies to sue governments over Covid-19 measures using the secretive investor-state dispute settlement (ISDS) system established in thousands of trade agreements across the globe.

"At a time when government resources are stretched to the limit in responding to the crisis, public money should not be diverted from saving lives, jobs, and livelihoods into paying ISDS awards or legal fees to fight a claim."

In their letter (pdf) made public Tuesday, 630 advocacy organizations applauded "some" political leaders for acting "to save lives, stem the pandemic, protect jobs, counter economic disaster, and ensure people's basic needs are met."

"But the expansive reach of the ISDS system could open such critical government actions to claims for millions in compensation from foreign investors," the groups wrote. "The numbers of such claims could also be unprecedented and impose massive financial burdens on governments struggling under the burden of devastating health and economic crises."

The ISDS system allows foreign investors to take legal action against governments in shadowy tribunals that critics have dubbed "corporate courts."

In one notable example, TransCanada—the former owner of the Keystone XL pipeline—filed a $15 billion ISDS suit against the U.S. in 2016 alleging that former President Barack Obama violated the North American Free Trade Agreement (NAFTA) by rejecting the fossil fuel infrastructure project. The company suspended its lawsuit in 2017 after President Donald Trump reversed Obama's decision with an executive order.

The coalition of civil society organizations behind Tuesday's letter includes prominent international organizations like Doctors Without Borders, Greenpeace, and Oxfam. The groups warned that as governments continue to take sweeping action to address the coronavirus pandemic and widespread economic pain, they could be slammed with a flood of lawsuits by foreign investors seeking massive payments in the middle of a recession.

The groups said countries could be targeted for policies that restrict business activity to slow the spread of Covid-19, bring down pharmaceutical costs, ensure access to clean water, and suspend rent and mortgage payments.

"At a time when government resources are stretched to the limit in responding to the crisis," the coalition wrote, "public money should not be diverted from saving lives, jobs, and livelihoods into paying ISDS awards or legal fees to fight a claim."

Governments should "immediately and urgently" take the following five steps to stave off ISDS suits, the groups said:

1. Permanently restrict the use of ISDS in all its forms in respect of claims that the state considers to concern Covid-19 related measures;
2. Suspend all ISDS cases on any issue against any government while it is fighting Covid-19 crises, when capacity needs to be focussed on the pandemic response;
3. Ensure that no public money is spent paying corporations for ISDS awards during the pandemic;
4. Stop negotiating, signing, and or ratifying any new agreements that include ISDS; and
5. Terminate existing agreements with ISDS, ensuring that "survival clauses" do not allow cases to be brought subsequently.

"Given that the battle against Covid-19 will continue," the groups said, "a spate of cases now could result in a 'regulatory chilling' effect, in which governments water down, postpone, or withdraw actions to tackle the pandemic from the fear of such payments, which could be deadly."

Read the full letter:

To Governments:

We are writing to you today to urge you to take a lead in ensuring countries around the world do not face a wave of investor-state dispute settlement (ISDS) cases arising from actions taken to tackle the Covid-19 pandemic and ensuing economic crisis.

Globally, some governments are taking actions to save lives, stem the pandemic, protect jobs, counter economic disaster, and ensure peoples' basic needs are met. The level of these actions has been unprecedented in modern times and the need for these actions has been clear. But the expansive reach of the ISDS system could open such critical government actions to claims for millions in compensation from foreign investors. The numbers of such claims could also be unprecedented and impose massive financial burdens on governments struggling under the burden of devastating health and economic crises.

ISDS in various forms is written into many trade and investment agreements. It allows foreign investors—and foreign investors alone—to sue governments in secretive tribunals outside of the national legal system for amounts far higher than are likely to be available to them in domestic courts.

The lawyers, who profit enormously from the ISDS system, are already fishing for corporate clients interested in using ISDS tribunals to extract large sums from governments over actions they have taken in response to the COVID-19 crisis. Law firms, trade experts, U.N. bodies, and human rights experts have already predicted an imminent wave of ISDS cases. Specialist law journals have speculated that: "the past few weeks may mark the beginning of a boom" of ISDS cases. Crisis situations in the past, such as the Argentine financial crisis or the Arab Spring, have led to many cases.

Cases could arise from actions that many governments have taken, such as those with the aim of:

• Restricting and closing business activities to limit the spread of the virus and protect workers;
• Securing resources for health systems by requisitioning use of private hospital facilities, putting private healthcare providers under public control, or requiring manufacturers to produce ventilators;
• Mandating relief from mortgage payments or rent for households and businesses;
• Preventing foreign takeovers of strategic businesses stricken by the crisis;
• Ensuring access to clean water for hand-washing and sanitation by freezing utility bills and suspending disconnections;
• Ensuring medicines, tests, and vaccines are affordable; and
• Debt restructuring.

The damage from a Covid-related wave of ISDS cases could be immense. From among the 1,023 known ISDS cases, thirteen have resulted in awards or settlements of more than U.S. $1 billion, including for lost future profits. By the end of 2018, states worldwide had been ordered or agreed to pay investors in publicly known ISDS cases the amount of U.S. $88 billion. Some developing countries have billions outstanding in pending ISDS claims.

At a time when government resources are stretched to the limit in responding to the crisis, public money should not be diverted from saving lives, jobs, and livelihoods into paying ISDS awards or legal fees to fight a claim. And given that the battle against Covid-19 will continue, a spate of cases now could result in a 'regulatory chilling' effect, in which governments water down, postpone or withdraw actions to tackle the pandemic from the fear of such payments, which could be deadly.

In order to prevent this, we urge governments to immediately and urgently take the following steps, before the first cases are brought:

1. Permanently restrict the use of ISDS in all its forms in respect of claims that the state considers to concern Covid-19 related measures;
2. Suspend all ISDS cases on any issue against any government while it is fighting Covid-19 crises, when capacity needs to be focussed on the pandemic response;
3. Ensure that no public money is spent paying corporations for ISDS awards during the pandemic;
4. Stop negotiating, signing, and or ratifying any new agreements that include ISDS; and
5. Terminate existing agreements with ISDS, ensuring that 'survival clauses' do not allow cases to be brought subsequently.

In light of threats exposed by the pandemic, comprehensively review existing agreements that include ISDS to see if they are fit for purpose.

More information on how to implement these actions is available in the annex (p. 12) to this letter.

We urge you to take immediate action to ensure that the duty of governments to regulate in the public interest is safeguarded and put beyond the scope of ISDS claims.

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