🔗 Share this article

How do you reckon our system of government operates? It could be something like this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills become law. The law is upheld by the courts. That's it. Well, that’s how it once functioned. Not anymore.

The Advent of Secret Arbitration Panels

In the modern era, overseas companies, and the oligarchs that control them, are able to litigate against governments for the regulations they pass, at secret arbitration panels staffed by business advocates. These proceedings take place away from public scrutiny. Unlike our courts, these tribunals allow no right of appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even businesses based in this country. The door is open only to corporations registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s projected profits, it may order damages of hundreds of millions, running into billions.

These sums constitute not real financial harm but money the panel members determine the company would perhaps have made. The state might be compelled to abandon its policy. It becomes hesitant to introducing similar legislation of a similar nature, worried about facing litigation.

A System Growing Exponentially

Historically high figures of disputes are being initiated, as firms observe each other, and private equity bankroll lawsuits in return for a share of the awards. The result? Democratic sovereignty and democratic governance are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the rulings made by legislatures is that this provision has been incorporated – absent public approval, and frequently under conditions of total confidentiality – into international trade agreements.

A Concrete Instance: The Cumbrian Coalmine

Last year, environmental campaigners secured a significant win at the high court. The presiding officer found that proposals to open the first deep coalmine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the consent the Tories had approved. Currently, this success faces being overturned by an foreign court reporting to only the entities filing the suit.

During August, a corporate entity whose beneficial owners are based in the offshore financial centre filed a lawsuit challenging the UK government. Recently a tribunal in Washington DC was convened to consider the case.

The company is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. The public has little idea how much this sum represents. Who is representing it against the British government? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary upholds it, then a international entity disputes it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coalmine case was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows scarce of the case to date, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has started suing a small nation for this reason, claiming sixteen billion dollars: an amount representing half nation's yearly income. Among the lawyers representing him there? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Escalating Costs

We were assured that such things wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all such treaties, stated: “The UK has signed trade deal upon trade deal and there has never been a issue in the past.” An expert on this matter labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states needed to fear these lawsuits. Warnings that “once firms begin to understand the authority they’ve been granted, they will shift their focus from the poorer states to the developed economies” were greeted by widespread derision.

That warning is now a reality. In the current period, oil and gas and mining firms have lodged a record number of claims against nations both wealthy and developing, challenging – like the example of the Whitehaven project – state efforts to prevent environmental catastrophe. Firms have so far won $114bn by using ISDS, of which oil majors have secured $84bn. That equates to the combined GDP