A scandal waiting to happen

A case almost unknown to the British public raises profound questions of justice in the UK. 

The history is this. A year ago, Friends of the Earth and a Cumbrian environmental group were successful in stopping a coal mine proceeding in Cumbria on various grounds, including that the government had not required an assessment of the emissions from the use of the coal to be produced by the mine. The mine would have extracted approximately 2.8 million tonnes of coal per year until 2050, generating approximately 220 million tonnes of carbon dioxide emissions.

Now the investors in the coal mine are suing the UK government. The investors are Singaporean and British, and have initiated arbitration proceedings based on a 1975 treaty between the UK and Singapore. The case was launched in August at the International Centre for the Settlement of Investment Disputes (ICSID), headquartered in Washington DC and part of the World Bank. The investors are represented by former Attorney General and current MP, Sir Geoffrey Cox. Last month, an Australian/Austrian arbitrator was appointed.

ICSID, which deals with investor-state dispute settlement (ISDS) cases, was established deliberately to avoid such disputes going to national courts. It was set up in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), a multilateral treaty proposed by the Executive Directors of the World Bank to further the Bank’s objective of promoting international investment.

The consequences of ICSID cases in relation to climate change to date have been set out devastatingly by a former UN Special Rapporteur on the issue of human rights obligations relating to the enjoyment of a safe, clean, healthy and sustainable environment, David R. Boyd. I cannot improve on his summary, and so quote it:

‘The fossil fuel industry is extremely litigious, leading to the filing of ISDS claims asserting that government actions intended to address the climate crisis have decreased the value of its investments. These cases come with a high cost for States. The average claim in arbitrations concerning fossil fuels is $1.4 billion, double the average claim in arbitrations related to non-fossil fuels. At the merits stage, fossil fuel investors win 72 per cent of cases, forcing Governments to pay more than $77 billion in compensation to date. The average award in published arbitration awards concerning fossil fuels is $600 million – five times the average amount awarded in arbitrations related to non-fossil fuels. The calculation of this figure excludes the largest award in investment arbitration history – $40 billion awarded in an arbitration related to fossil fuel investments in the Russian Federation. Governments fulfilling their commitments under the Paris Agreement on climate change may be liable to oil and gas corporations for $340 billion in future ISDS cases, which is a major disincentive for ambitious climate action.’

I draw the following conclusions:

First, an irony. Much political capital is spent on how terrible it is that we are subject to the European Convention of Human Rights, with the European Court of Human Rights interfering in our parliament’s ability to make its own sovereign decisions. But no-one seems to care about a foreign arbitration system outside our court system which can interfere with our ability to regulate our environment in the interests and health of our citizens.

Second, a chilling comparison. The ending of slavery was only possible because slave-owners were compensated for their loss of investment through the Slave Compensation Act 1837. 40% of the Treasury’s tax receipts at the time were paid to former slave owners, but not a penny to the liberated slaves. The government’s debt lasted until 2015. Nothing compares to the horrors of slavery, but are we now witnessing a similar phenomenon: that action against climate change can only be successful if we pay the chief perpetrators in the fossil fuel industry gigantic sums to protect our future?

Third, justice. Arbitration as a whole is without oversight, despite dealing with extremely significant issues. The ICSID system, which is only a small part of overall international arbitration, is heavily criticised. The UN rapporteur mentioned above (and he is far from alone in his criticisms) said of ISDS:

‘These cases are decided not by independent judges but by arbitration lawyers, many of whom work for law firms that represent investors … the majority of ISDS cases today challenge legitimate public policies enacted by democratic governments in States with independent judiciaries … Among the many concerns expressed by States and critics are the incompatibility of ISDS with international human rights law, crippling damages awards, secrecy, lack of public participation, restrictions on States’ ability to regulate, the one-sided system, inconsistent tribunal decisions, the high costs of defending arbitration claims and conflicts of interest or the perceived bias of arbitrators in favour of investors’.

All of this - through the Cumbrian coal-mine case - amounts to a scandal waiting to happen in our country.

Jonathan Goldsmith is Law Society Council member for EU & International, chair of the Law Society’s Policy & Regulatory Affairs Committee and a member of its board. All views expressed are personal and are not made in his capacity as a Law Society Council member, nor on behalf of the Law Society