Stop Corporate Courts: The Virtual Edinburgh Tour

By: Jane Herbstritt
Date: 13 May 2019
Campaigns: Trade

Follow the ISDS Edinburgh tour on google maps here

Stop Corporate Courts

The movement to stop TTIP (the shelved  EU-US mega trade deal) shone a light onto an aspect of trade treaties that most had been unaware of: ISDS (investor-state dispute settlement). For those who don’t know, these are secret courts, which operate outside of the domestic justice system. They allow corporations (and ONLY corporations – citizens and communities do not have access) to sue governments if there is a change of policy or law that will impact on their profits.

This parallel justice system, which allows corporations to bully states, is contained in thousands of bilateral investment treaties (BITs) between countries around the world. First established in the 1960s, ISDS has been used much more proactively by corporations in the last 20 years.

The UK has more than 100 BITs with ISDS clauses in force with countries around the world. They threaten the democratic rights of governments and citizens. We are campaigning for ISDS to be excluded from future UK investment deals, and also to be removed from existing deals.

Local landmarks

As we launched the new campaign in the UK, I went in search of some local ISDS landmarks in my home town of Edinburgh – some physical evidence in my local area that would tell the story of the workings of these highly secretive tribunals, relied upon by corporations and corporate lawyers alike to secure a tidy profit.

1. Veolia Sewage Treatment Plant, Seafield

I followed my nose and the bad smell led directly to my first piece of evidence: the multinational corporation Veolia. The company runs Scottish Water’s sewage treatment plant at Seafield as a private finance initiative (PFI) and the smell is something local residents have complained about time and time again. Veolia have had their knuckles rapped a few times, and still not enough has been done, but Scottish Water is tied to the contract that they agreed with the multinational.

Veolia is a French multinational that provides wastewater treatment facilities in some regions of Scotland. It is also one of the biggest water utilities companies in the world and takes on service contracts worldwide. Seven years ago, a private-public partnership waste management contract was the cause of an ISDS dispute between the Egyptian government and the company. In the wake of the Arab Spring, Egypt had raised the minimum wage. But this was causing Veolia to lose profits – so they filed an ISDS case to claim for lost income. The case took 6 years to resolve and eventually decided in Egypt’s favour. However, in many ways the Egyptian government lost as well, as it spent six years defending the case and paid millions of dollars in arbitration and legal costs.

So, could a similar thing happen here? Could Veolia sue the UK government if they decided to raise the minimum wage? Or an independent Scottish government that insisted public sector workers were paid the living wage, as Scottish government and Scottish NHS staff are? What  if the Scottish government decided to remove the PFI contract for the Seafield plant from Veolia because of lack of action to deal with bad odours, as residents have demanded they do?  Could this also lead to a ISDS tribunal with the Scottish government in the dock? Surely it makes sense to remove ISDS from trade and investment treaties,  and avoid this possibility!

2. Clyde and Co – International Arbitration Lawyers

A search for further ISDS landmarks takes me further into the city centre, to Albany Street, where Clyde and Co, a law firm specialising in investment arbitration (that is ISDS tribunal law) resides. A report by the Transnational Institute (TNI) listed Clyde & Co at number 17 in the top 20 busiest investment arbitration law firms around the world (see page 21).
Investment arbitration is an incredibly lucrative business and specialist law firms can make huge profits. Industry insiders estimate that 80% of all legal costs in arbitration are spent on lawyers’ fees. Elite firms can charge $1,000 per lawyer, per hour with whole teams investigating cases.

The global ‘ambulance chasers’ of the 21st century, these law firms with international reach will flock like vultures to a carcass, circling wherever the next economic crisis or civil war looms., For example, the economic reforms that the Argentinian government put in place after the economic crisis of 2001 led to more than 40 ISDS cases from corporations looking for compensation for lost profits. Awards against the country mounted to more than US$1.15 billion by the end of 2008. According to TNI, that would have paid the equivalent salaries of 150,000 Argentinian public sector teachers, or 95,800 doctors.

Clyde and Co was the first foreign law firm to open an office in post-Gaddafi Libya, anticipating disputes as a result of regime change. On a blog site to which Peter Hirst, one of the partners at law firm Clyde & Co, contributes, a writer from the University of Westminster anticipates that the next ambulance the arbitration industry will be chasing, will be Brexit. Ioannis Glinavos predicts that, in the event of a no-deal Brexit, the London-based financial sector will use ISDS to attempt to recoup lost profits. In a blog post entitled ‘ISDS: the Brexit lawsuits the UK should be worried about’ they conclude: ‘Brexit has just become a lot less boring if you are an investment treaty arbitrator.’

3. Edinburgh’s financial district: Cairn Energy

In search of more ISDS icons, we head to the financial district of Edinburgh to find the only Scottish multinational currently pursuing remuneration for lost profits through these secretive corporate courts. Cairn Energy’s headquarters is based on Lothian Road, nestled amongst investment banks and insurance company offices off the Clydesdale Bank plaza.

Cairn Energy is an oil and gas prospector, dubbed the ‘Cairn Cowboys’ for their plans to drill for oil in the Arctic without adequate oil spill contingency plans. However, Cairn’s ISDS claim is tax related and stems from the sale of Cairn India to UK company Vedanta in 2012, which prompted the Indian government to make a retrospective tax claim in 2014. Litigation is ongoing, with a decision now delayed until the end of 2019.

There have been over 40 different tax-related ISDS cases in over 40 different countries since 1995. Let’s be clear: states are not always democratic, nor do they always act in the public interest. But the threat is clear: Cairn Energy’s case is just one example of a wide range of state tax measures that have been challenged by giant companies through the ISDS system. The power this grants corporations to challenge progressive tax policies should concern citizens in every country that has signed up to trade and investment treaties that contain ISDS.

Meanwhile Cairn continue to prospect for oil in the Arctic. The UK parliament’s Environmental Audit Committee called for a moratorium on Arctic drilling in 2012 which has so far been ignored. If Greenland was to issue a moratorium, would there be a bilateral trade agreement that Cairn could use to start an ISDS dispute for profits lost?

4. Vattenfall

(Credit: M Butler CCBY-NC 2.0)

German citizens were one of the biggest campaigners against TTIP in 2016 with hundreds of thousands of protestors taking to the streets during nationwide days of action. Their suspicions about TTIP might well have stemmed from the two ISDS claims that Swedish energy company Vattenfall has recently made against the German government.

Both ISDS claims were instigated when public opposition to environmentally unfriendly power stations was so strong that the government felt it needed to take action. These abrupt changes in local and national government policy, though led by public opinion, persuaded Vattenfall to challenge these decisions using ISDS. In the first case, the local government of Hamburg strengthened environmental law that needed to be complied with if Vattenfall wanted to build a new coal-fired power station. Vattenfall challenged the decision using ISDS. And while an out of court settlement meant the government avoided huge costs, it was forced to drop its extra requirements.

The second case arose when the German government chose to phase out nuclear power stations because of public concerns after the Fukishima disaster. Vattenfall’s claim for damages is still ongoing.

Vattenfall’s small office in Edinburgh is down the Royal Mile towards the Scottish parliament. They share office space with the BBC and WWF Scotland. In 2012, a quarter of Vattenfall’s electricity production was from nuclear. However the company has a commitment to move away from non-renewable energy sources by 2050. Their work in Scotland is wholly focused on renewables.

Arguably, Vattenfall is well placed to bid for a contract for a new nuclear power station in Scotland, something the Scottish government has promised it would stop, using Scottish planning legislation.  Whether that happens or not, it is concerning that the democratic right of governments to change policy because of public opposition to an infrastructure project can be challenged through these corporate courts. ISDS puts pressure on governments to ignore the will of the people or face huge costs to the public purse.

5. The Scottish parliament

Our final stop, at the bottom of the Royal Mile, is the Scottish parliament. Celebrating its twentieth birthday in 2019, the existence of the Scottish parliament has allowed us to do things differently in Scotland. From the ban on GM crops, to free university tuition, stronger climate targets and a moratorium on fracking, successive Scottish governments have made better policy choices that have improved lives. But as we saw in the Vattenfall example, ISDS in bilateral trade agreements can restrict the ability of governments to react flexibly to calls for change from the public. Furthermore, a parliamentary question asked by the SNP in Westminster recently revealed that if an ISDS case was brought against the Scottish government, the UK government would represent the Scottish government in court, but the Scottish government would have to pay any fees.

A global concern

The potential for ISDS to weaken our democratic rights as citizens, and to weaken laws meant to protect the public and our environment in this country, is very worrying. However, our real concern about ISDS is not the cases that might be brought against Scotland, but the cases UK-based companies will bring against countries around the world. The UK is the third most likely country from which a corporation will raise an ISDS claim against another country. Whereas the countries that have faced the most claims since 1987 are largely from the global south, with Argentina and Venezuela the most targeted country for ISDS claims. Governments in the global south should not be spending their time and money fighting these cases when this money could be far better spent developing public infrastructure.

Let’s show solidarity with citizens around the world fighting to protect their environment and their own human rights: sign the petition calling for ISDS to be removed from UK Bilateral Investment Treaties.