Exclusive: Countries To Face a ‘Wave’ of Corporate Lawsuits Challenging Emergency COVID-19 Measures

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Yves here. So now it’s clear: some companies and their law firm enablers see their right to profit, even in the face of the Covid-19 pandemic, as more important than human lives. This has been an underlying theme of investor-state dispute settlement suits (which we’ve written about extensively), but it’s never been as crass as here. On top of everything else, these actions will deplete government coffers, adding to public distress.

The only upside is this sort of thing should kill incorporating meaningful investor-state dispute settlement provisions into future trade deals.

By Laura Basu, Laurie Macfarlane, and Aaron White. Originally published at openDemocracy

Countries could soon face a ‘wave’ of multi-million dollar lawsuits from multinational corporations claiming compensation for measures introduced to protect people from COVID-19 and its economic fallout, according to a new report.

Researchers have identified more than twenty corporate law firms offering services to mount such cases, which would seek compensation from states for measures that have negatively impacted company profits – including lost future profits.

Measures that could face legal challenges include the state acquisition of private hospitals; steps introduced to ensure that drugs, tests and vaccines are affordable; and relief on rent, debt and utility payments.

Lawmakers across Europe have condemned the activity described in the report, with one describing such activity as an “attack on democracy”.

The research, co-published by the Transnational Institute (TNI) and Corporate Europe Observatory (CEO), draws on statements from firms’ legal briefings, client alerts and webinars – and outlines a list of what it calls “ten particularly heinous litigation scenarios developed by some of the busiest law firms.”

‘A Parallel Justice System for the Rich’

Under controversial ‘Investor-State Dispute Settlement’ (ISDS) mechanisms, foreign investors, companies and shareholders are able to sue states directly at obscure international tribunals over a wide range of government actions.

Over 1,000 known investor-state lawsuits have been filed over the past 25 years, in what the researchers describe as “a parallel justice system for the rich”. Many of these disputes followed actions taken by countries during times of crisis, such as the Argentine financial crisis in the early 2000s and the Arab Spring in the early 2010s.

Commenting on the findings, Caroline Lucas MP said: “Many of us have warned for years that investor-state dispute settlement mechanisms are extremely dangerous, and here is yet more damning evidence.

“Public money should go towards protecting public health and people’s livelihoods, not towards lining the pockets of greedy multinational corporations and their lawyers.”

Among the law firms named in the report is US-based Shearman & Sterling. In 2014, it secured the largest award in the history of investor-state arbitration after suing the Russian government for $50 billion on behalf of shareholders of the oil and gas firm Yukos.

In a recent briefing on COVID-19, the firm says that it “stands ready to advise states and investors alike in relation to the government measures that have been or will be adopted in the context of the COVID-19 pandemic.”

Measures highlighted include rent forgiveness and the suspension of energy bill payments. “While helping debtors, these measures would evidently impact creditors by causing loss of income”, Shearman & Sterling warns.

It continues: “measures ostensibly taken to deal with a serious problem but otherwise disproportionally affecting certain businesses… may be inconsistent with international law.”

Emergency measures taken to protect public health could also be in the firing line. In Spain and Ireland, private hospitals have been taken over by public healthcare systems, while the US government has ordered companies to produce ventilators and other medical equipment.

Lawyers from Quinn Emanuel, the world’s largest law firm devoted to business litigation and arbitration, whose clients include ExxonMobil and Koch Industries, state that investors in the healthcare industry could “have indirect expropriation claims if turning over control was involuntary”. They also say that companies that have been compelled to produce medical supplies could sue for “unlawful indirect expropriation” if they believe adequate compensation is not provided.

Other potentially “heinous” scenarios cited in the report include cases brought against states for action taken to provide clean water for handwashing, and for failing to prevent social unrest.

‘Sacrificing Citizens for Business’

Martin Schirdewan MEP, co-chair of the European United Left–Nordic Green Left parliamentary grouping, told openDemocracy:

“Use of investor-state lawsuits is an attack on democracy in any circumstance. But the fact that corporations are considering suing governments over measures taken to protect human health, in the midst of a pandemic, is truly appalling.

“However they dress it up, such a mechanism still provides corporations with the power to sue governments that implement policies that may impact on their expected future profits, and be awarded damages.”

Manon Aubry, MEP for La France Insoumise, said: “Investment protection treaties give multinational corporations the certainty that, whatever happens, states will guarantee their profits above all else, including the general interest.”

“We urgently need to get out of these treaties that would have us sacrificing citizens to protect nefarious business models, from big pharma to fossil fuel industries, even in times of crisis.”

A spokesperson for Shearman & Sterling said that the briefing referred to in the research makes it clear that states have “a duty (and a right) to protect public health and their economy” as well as “a broad latitude to deal with crises” under international law. They also said that Shearman & Sterling acts on behalf of states as well as investors in investment treaty disputes, and has won a number of landmark victories on behalf of states. The firm is also engaged in extensive pro-bono work related to COVID-19 issues.

Quinn Emanuel did not reply to our request for comment.

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  1. tegnost

    Pause for a moment to consider where we would be had “the gold standard of all trade deals” had been enacted.

    1. Off The Street

      Worth reviewing the list of those pushing on that gold standard trade deal, as well.
      What did they have to gain?
      Who did they represent, publicly and privately?
      Consider some contact tracing for their particular variety of virus transmission, as a prerequisite for any legislation, whether trans-national or garden-variety domestic.
      Keep weeding those gardens to keep them organic, and their consumers healthier.

    2. Craig Welch

      Manon Aubry, MEP for La France Insoumise, said: “Investment protection treaties give multinational corporations the certainty that, whatever happens, states will guarantee their profits above all else, including the general interest.”

      That is nonsense as (i) there is no certainty. Investors and States succeed in ISDS arbitration numbers in roughly equal proportions and (ii) there is no such ground for a dispute as “the Government did something that affected our profits”. Only breaches of the treaty can be used as grounds for a dispute.

      1. Yves Smith Post author

        Your comment is absolutely false. If you continue to provide disinformation, you will be blacklisted. It is a violation of our written site Policies (see agnotology, or as we informally call it, “Making shit up”).

        Companies overwhelmingly win ISDS suits. This is the latest sighting from my backstage, since I’m not going to break a sweat contesting such ostentatiously fabricated claims:

        But it’s worse than that. UNCTAD’s database of known ISDS cases and their outcomes shows that in all cases decided through the end of 2014, the investor won 27% of the cases compared to 36% won by the state (see Figure III.10, p. 116). But another 26% of the cases are listed as “settled,” which often (but not always) means the respondent agrees to make some payment to the plaintiff to keep the case from going to arbitration. Public Citizen has a list of ISDS cases under prior U.S. trade agreements with examples of settlements that do and do not contain payments (see, for instance, NAFTA cases against Canada).

        Moreover, as IISD attorney Howard Mann argues, if we separate out cases between jurisdictional determinations and determinations on the merits of the case, things look even worse for states. While only 71 of 255 cases (this excludes the “settled” cases) were concluded by a decision of the tribunal having no jurisdiction, Mann points out that all 255 cases effectively had decisions on jurisdiction, i.e., cases with final decisions had to have rulings that the arbitrators had jurisdiction. In that case, Mann says, “Investors, therefore, have won 72 per cent [184/255] of jurisdictional determinations.” And of the decisions on the merits of the cases, investors won 111, or 60%, of the remaining 184 cases. This calculation suggests that states are losing ISDS disputes at a much higher rate than normally portrayed. As if that’s not bad enough, the new World Investment Report finds that in 2014, of the 15 ISDS cases decided on their merits, states lost 10 (2/3) of them. In 2013, it was even worse for states, with investors winning 7 of the 8 cases decided that year (p. 126). If these higher proportions continue, obviously the proportion of investor victories will increase beyond the current 60% total.


        Note that the post shows how claims otherwise don’t hold up when you look at the data.

        As we have previously written about ISDS suits:

        These companies are not suing for actual expenses or loss of assets; they are suing for loss of potential future profits. They are basically acting as if their profit in a particular market was guaranteed absent government action. And no one else enjoys these rights. Consider highly paid workers in nuclear plants. Will they get payments commensurate with the premium they’ve lost over the balance of their working lives from the phaseout of nuclear power? Will cigarette vendors in Australia get compensated for the decline in their sales? Commerce involves risk, which means exposure to loss, yet foreign investors want, and seem able to get, “heads I win, tails you lose” deals via these trade agreements.


  2. ambrit

    As I commented yesterday on another thread, now corporations are claiming co-equal status to nation states. This will not end up well. The more stresses a system is subject to, the quicker it falls apart. These corporations had better re-read their history. In many cases, when the popularly supported State has been degraded enough, strongarm parties arise to fill the void. Those strong arm entities tend to crush both public and corporate institutions equally.
    One way or another, with the ISDS in play, the corporations have signed their own death warrants.

    1. John Zelnicker

      May 19, 2020 at 10:58 am

      Excellent points, ambrit.

      Best wishes to you and Phyl. I hope y’all are doing okay.

      1. ambrit

        Hugs and kisses from us both John.
        We are doing well, since we can (sort of) afford to stay at home. Luckily, we were never pariers or casino lizards. We do feel sorry for the younger cohort who are stuck in limbo without any ‘secure’ source of income. There is where the future revolutionary class will come from.
        As to the asymmetry aspect of corporate legal machinations, my Dad had a pretty good idea for a simple invention in the plumbing field. He breezed through the American side of the patent process. (Which cost him several hundred dollars back in the 1970’s, when money was worth something.) Then, he is blindsided with the International patent search requirement. Blast! There was a similar idea patented in France. Not even really similar, but logically similar. Next step. Dad writes off to the Frenchman who owns the French patent to inquire about buying the North American rights to the patent. Dad gets a nice letter back from the Frenchman. Sorry Charlie. A major plumbing manufacturers trade group has bought the patent from the Frenchman and suppressed it. That was our baptism by fire concerning the “ethics” of corporations.
        Stay safe, Happy ‘Extended’ Tax Day!

        1. John Zelnicker

          I never go out much anyway since I work from home, and I only need little or no personal contact with my clients.

          Sorry your father got screwed like that. Must have been a pretty good invention since the plumbing group suppressed it.

          I also have high hopes for the younger generation, once we get through the worst of the pandemic.

          Be well, stay safe.

          1. ambrit

            Let’s just say that it replaced a $1.50 USD device (all 1970’s dollars,) with a $.25 USD device. Also a very often used item. Lots of volume sales.
            This happening convinced me that corporations were not to be trusted with anything having an impact on the public good.
            Later he was screwed by some shysters from Tel Aviv. That was when we learned about the “special nation” status afforded Israeli businesspeople in America. Even the hebrew people who heard the latter story would remark that “those businessmen from Israel are the worst of the worst.” (I heard that actual phrase used by a jewish businessman my Dad knew. He would not deal with Israel based businesses.) Not to single the Israelis out, just an example of the amoral nature of capitalism. Think the Nigerian prince scams, a variant of the Spanish Prisoner con game.

        2. Sue inSoCal

          Awful! Don’t know you, but I’m so sorry this happened to your dad. I’m just a measly retired lawyer who couldn’t go back to work in the insurance biz after becoming seriously ill. Giant corporate interests rule everything, and it’s only getting worse. Therein lies just one of the problems, but nonetheless a huge one. They are “people,” but pay little if no taxes. It is sickens me that safety for citizens in a time such as this doesn’t supersede these ghouls’ financial interests. Rewrite these “agreements.” Abolish them? Probably neither will happen.
          Stay in, stay safe.

          1. ambrit

            You be safe too.
            As a “measly retired (insurance) lawyer,” I’ll bet you could enlighten us mopes out here on things to look out for, legal wise. If you had to sign any non disclosure agreements, I hope that you got your moneys worth for them.

    2. Alice X

      ISDS provisions were instituted in trade deals with colonies as they achieved independence in the’50s and ’60s. Corporations were concerned that there would be no local legal remedies to unfavorable occurrences. Of course the other option which was maybe preferable to them was the overthrow of democratic governments in favor of a strongman who tended to stay bought, less moving parts.

      ISDS provisions have been standard fare since then.

      Under such a provision a Swedish maker of nuclear reactors sued Germany after they gave up that source of energy.

  3. fajensen

    Corporations depends on the nations state’s security services and legal systems to protect their business and their owners.

    If the nation states money also has to go to ISDS claims, then maybe there are few ressources left to recover funds stolen by hackers, get company people and lawyers off those terrorist databases they accidentially was added onto, recover kidnapped executives and whatever else bad stuff that just might randomly happen, that the nation states also has to clean up!

  4. rusti

    But the fact that corporations are considering suing governments over measures taken to protect human health, in the midst of a pandemic, is truly appalling.

    It seems like a good time to make this a political rallying cry because it is so utterly egregious in a way that is highly visible. I hope it can get some traction outside of this relatively small political group (40/705 MEPs).

    Even if support from other factions is likely to be of the “Getting in front of an angry mob and calling it a parade” persuasion it is good if ISDS can be made to be politically toxic.

    1. Sue inSoCal

      Yes, you are correct! I’m not sure if people are generally aware of this. In fact, I’m pretty certain they aren’t.

  5. Dwight

    I wrote my Congressman, a centrist Democrat, about the TPP and particularly ISDS several years ago. I got back a letter saying that he supported the TPP, in which he characterized the ISDS provisions as “mediation” not arbitration. I wonder if he or his staff was lying or was just ignorant about the huge difference between binding arbitration and non-binding mediation. I almost prefer they were lying.

    I wonder how often Congress gets threatened with investor claims when trying to legislate in the public interest.

  6. K teh

    Masks increase co2 and catch the microbes, mimicing the ghetto system for the vast majority with no respiratory issue.

    The experts are stupid, corrupt, or both.

    We have a serious issue in the failure to challenge assumptions in this country, which begins with an education system that penalizes children for challenging assumptions in favor of peer pressure – democracy defined as mob rule.

    This exercise is going to backfire, spectacularly.

  7. John

    Does this prove or merely demonstrate that the depths of legal and corporate depravity are not to be plumbed? In their murkier backrooms they may have “muscle”, but do they have the means to press their suits, to collect, if nations simply refuse to play by their rules?

  8. chuck roast

    We need a new political party.

    Top of the agenda for that party…defanging the legal corporation and awarding it tertiary legal rights. Executives and Boards should no longer be awarded legal liability for felonies or misdemeanors. Executives and Boards shall be democratically elected by a vote of all employees. Advertising costs and legal costs must come out of profits and shall not be a cost of doing business. Businesses other than corporations shall enjoy zero limited liability. Executives and Boards of Directors shall not be permitted to hold elective office for ten years after stepping down from the Corporation. Any person holding elective office shall not occupy any position in the administration of a Corporation until ten years after leaving office. Members of the judiciary shall never be allowed to hold a Corporate office. Similarly, Corporate office holders shall be permanently barred from holding a position in any judiciary branch of government. All Corporations d.b.a. in America will be subject in their entirety to American laws including making their incorporation papers public documents.

    I’m sure I missed a whole bunch of stuff…

    1. Craig Welch

      On 20 April 2016 the District Court of The Hague quashed the decisions of the Permanent Court of Arbitration in Hague, ruling that it had no jurisdiction as provisional application of the ECT arbitration clause violated Russian law.

      That decision was overturned earlier this year.

  9. Matthew G. Saroff

    It should be noted that the people pursuing the ISDS the most are the “Free Trade” folks in the USA.

    This was proved when the US exited the TPP, and the trade deal became the CPTPP, as shown by this primer on the changes from New Zealand.

    The changes are the things that the US was forcing into the agreement, and one of the items weakened was the ISDS. (Also give aways to Pharma, extension to copyright, and hamstringing government procurement, and hamstringing post offices, were reduced or eliminated)

    1. Craig Welch

      The changes are the things that the US was forcing into the agreement, and one of the items weakened was the ISDS.

      (my emphasis)

      The major changes are those you’ve listed, removing the more egregious American demands. The changes to ISDS were trivial, it was pretty much unscathed.

  10. ira

    This can only happen if governments allow it to. Governments are sovereign entities and basically can do anything they like. The fact that sometimes they don’t, tells you about their priorities. Nobody can ‘force’ governments to do anything.

    Think about it: contracts are enforced by the state penalizing those who don’t live up to them — the first reason why the ‘market vs the state’ meme is complete nonsense. But who is there to penalize the state ? The U.S. military ?

    This type of discourse is a type of emotional blackmail, either to extort the state for money, or to scare them into not taking actions to protect their own citizens. A forceful communique from a government with threats to further damage any of the relevant companies further business will see them and their parasitical lawyer lackeys (corporate lawyers are the scum of the earth) retreat with their shit-stained tails between their legs.

    1. Kouros

      Yes, so very true. But there is a vetting process to allow people (politicians/legislators, judges, and administrators) into government which now is opposite to the papal vetting: ‘testiculos habet et bene pendentes’. Of course, here I am talking figuratively. Probably more apt would be the check on the backbone since it applies to all people…

    2. Craig Welch

      A forceful communique from a government with threats to further damage any of the relevant companies further business will see them and their parasitical lawyer lackeys (corporate lawyers are the scum of the earth) retreat with their shit-stained tails between their legs.

      Such a threat would be a breach of that country’s own laws, and would be sorted out its courts.

      ISDS disputes are held under the terms of treaties, in which countries agree to take disputes (with other parties,, and investors of other parties) to arbitration. They agree to stand by the results of that arbitration. To not do so is a breach of an international treaty, and no-one wants to do with business with such a rogue state. In any case, an ISDS award can be enforced in other countries.

  11. LAS

    This is no surprise. Corporations have been resisting public health in the courts since practically forever. Sometimes they win. Sometimes they don’t.

  12. RBHoughton

    The sooner we restore national sovereignty the better. Its wrong to have these international businesses demanding a share of everything. Let’s get back to ‘my surplus for your surplus’

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