A COALITION of Scottish organisations are warning of a threat to public services through a potential multi-million wave of Covid-19 claims in secretive 'corporate courts'.

The Scottish Government is being warned they face being hit as countries face what is described as a wave of cases from transnational corporations suing governments over actions taken to respond to the Covid-19 pandemic using so-called investor-state dispute settlement, or ISDS.

Lawyers say investors can lodge claims through the closed-door arbitration system enable by trade treaties for lost expected profits resulting from government measures to protect public health and provide economic relief.

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Some major law firms have already published client alerts and held webinars to inform clients about how to use ISDS over coronavirus measures.

The Trade Justice Scotland coalition, a network of more than 25 trade unions, campaign organisations and local groups have now warned ministers of the impact of ISDS - and how it could affect public services.

Similar appeals calls have been made by groups in 90 countries worldwide, with more than 630 organisations including Oxfam and Medecins Sans Frontieres calling for urgent action to shut down this threat. 

The Corporate Europe Observatory (CEO), a Brussels-based monitoring organization has warned that the legal industry was preparing the ground for "costly ISDS suits against government actions that address the health and economic impacts of the coronavirus pandemic".

One multi-national law firm Alston and Bird helped host a webinar at the end of April titled 'The Coming Wave of Covid-19 Arbitration" which suggested avenues for corporations to "minimise risk in the context of such disputes".

In the past 25 years over 1,000 known investor-state lawsuits have been filed.

Experts say they tend to arise from difficult societal issues such as the Argentine financial crisis in the early 2000s or the Arab Spring in the early 2010s.

Investors have won a significant amount of ISDS claims as arbitral tribunals ruled that it was illegal to interfere with prices of essential goods, restrict or tax the export of vital products, or roll back incentives to investments.

Legal costs for ISDS disputes are estimated to average around £4m per party while having exceeded £24m in some cases.

Cases may arise from actions that many governments have taken to save lives, stem the pandemic, protect jobs, counter economic disaster and ensure peoples’ basic needs are met.


The threat comes from investment treaties which grant foreign investors a range of broad, powerful rights against their ‘host states’, including protection against the nationalisation or requisition of property without adequate compensation; a guarantee of ‘fair and equitable treatment’, prohibiting arbitrary government decision-making; and an obligation not to discriminate overseas entrepreneurs less favourably than the government treats its own nationals.

More than 2,500 investment treaties are currently in force around the world.

They give investors the right to challenge the host state’s conduct outside of the local courts and instead through binding international arbitration.

The Trade Justice Scotland coalition said Scotland could be at risk of ISDS challenges due to the different route it has taken from the rest of the UK in responding to the Covid-19 pandemic, such as closing construction sites earlier than the rest of the UK in the lockdown and keeping businesses shut for longer to protect public health.

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Over the past decade, claims against states have exploded.

Countries which closed their borders severely affected bus, train and airline companies leading at least one law firm to advise the transport industry could claim for lost investments.

Countries including El Salvador and Bolivia allowed citizens to delay payments for services such as water and electricity. In a client alert at least one law firm said foreign-owned utility companies could sue for lost revenue streams.

In India after there were restricted imports of pharmaceutical ingredients as it sought to shore up its national medical supplies, at least one law firm told clients they could recover losses if they were affected by such violated investment agreements.

Threats of cases have already been made in Peru over the suspension of charging on toll roads, and law firms are actively advising corporations of the options open to them.

Jane Herbstritt of social justice campaign organisation Global Justice Now said: “ISDS cases against the Scottish and UK government after lockdown would mean money that could have been spent investing in public services, adequate incomes for keyworkers, and a green economic recovery would instead go to corporations.

"Many of us have lost income and worse during lockdown because we were abiding by the rules set by the Scottish and UK governments to protect people’s lives. Why should corporations be able to sue for their lost profits, which could then deny citizens the benefits of public investment that would ensure an equitable economic recovery? We urge the First Minister to call for the suspension of ISDS at this time, and ultimately for ISDS to be removed from any current and future trade and investment deals negotiated by the UK government.”

Stephen Smellie of the public service union UNISON Scotland added: “The challenge facing government after lockdown and suppressing the virus will be to protect public services, rebuild the resilience of our community and address the deficiencies that have been shown up, such as in the private care sector.

"Global corporations using ISDS to line the pockets of shareholders will be acting against the public interest and hampering us all in addressing the needs of our communities. It is therefore essential that steps are taken by the government to prevent this and to protect services.”

A Scottish Government spokesman said: “Scottish Ministers and officials met representatives of Global Justice Now and the Trade Justice Scotland Coalition recently to discuss their concerns over ISDS and other aspects of international trade and investment agreements.

“The Scottish Government’s engagement with the UK Government in the development of future trading arrangements will be informed by these and other discussions.”