🔗 Share this article

How do you understand our democratic process operates? Maybe similar to this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. End of story. Yet, that’s how it operated in the past. Those days are over.

The Advent of Shadow Arbitration Panels

Today, international firms, and the billionaires behind them, have the power to sue governments for the laws they pass, at offshore tribunals composed of corporate lawyers. The cases are conducted behind closed doors. Unlike our courts, these tribunals grant no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies operating from this country. The door is open only to businesses based overseas.

If a tribunal determines that a law or policy might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions of pounds, even billions.

These awards represent not tangible damages but compensation the tribunal officials determine the company would perhaps have made. The administration may have to abandon its policy. It becomes discouraged from passing future laws along the same lines, for fear of facing litigation.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as corporations learn from each other, and hedge funds finance suits in return for a cut of the settlements. The result? Democratic sovereignty and popular rule are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the rulings enacted by legislatures is that this provision has been written – absent public approval, and typically amid a climate of extreme secrecy – inside bilateral investment treaties.

A Real-World Case: The UK Coalmine

Last year, a conservation group won a great victory at the high court. The judge ruled that schemes to dig the first major coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the consent the former government had issued. Currently, this success is under threat by an foreign court answering to exclusively the companies petitioning it.

During August, a firm whose beneficial owners reside in the offshore financial centre lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was established to hear it.

This firm is litigating against the UK for the profits it would have generated if the mine had been allowed to commence operations. The public has little idea how much this could amount to. Who is representing it against the British government? A sitting MP, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government enacts a policy, the high court upholds it, then a foreign company contests it through an secretive private court, and a elected official represents its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know nothing of the case so far, but it is highly possible that he’ll use the arbitration process to fight the penalties the UK levied against him subsequent to the invasion of Ukraine. He has already started suing a small nation for this reason, seeking a colossal sum: an amount representing half nation's yearly income. Among the legal team acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

International law scholars believe that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its financial support package arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states might be preventing the money Ukraine critically depends on.

False Assurances and Mounting Threats

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, advocating for the most significant and hazardous of all these agreements, declared: “Britain has agreed to investment treaty after trade deal and there has never been a issue in the past.” An expert on this issue accused critics of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by these lawsuits. Warnings that “once firms grasp the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with scepticism.

That threat is now a reality. In the current period, energy and mining firms have initiated a historic level of claims against nations rich and poor, challenging – similar to the Whitehaven project – government attempts to prevent global warming. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained the majority. That represents the combined GDP