🔗 Share this article

How do you reckon our system of government functions? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. End of story. Well, that was how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

Today, international firms, and the billionaires who own them, can sue elected administrations for the policies they pass, at offshore tribunals made up of commercial attorneys. These proceedings take place behind closed doors. Differing from national judiciaries, these tribunals grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. They are open solely for corporations registered abroad.

When a secret court determines that a government measure might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

These sums are based not on real financial harm but funds the panel members decide the company would perhaps have made. The administration might be compelled to rescind the measure. It will be discouraged from passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Running Rampant

Record numbers of legal actions are being filed, as companies observe each other, and hedge funds bankroll lawsuits in return for a cut of the awards. The result? Democratic sovereignty and democracy are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the decisions enacted by elected bodies is that this stipulation has been incorporated – absent public approval, and often in conditions of profound opacity – within trade treaties.

A Specific Example: The UK Coal Mine

Last year, a conservation group won a great victory at the High Court. The presiding officer found that plans to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had no consequence on climate commitments. The new government later cancelled the licence the Tories had granted. Currently, this victory could be compromised by an secret arbitration panel reporting to only the corporations petitioning it.

In August, a company whose ultimate owners reside in the offshore financial centre initiated proceedings versus the UK government. The previous week a arbitration panel in Washington DC was convened to hear it.

The claimant is suing the UK for the money it might have made if the mine had been allowed to proceed. Citizens have no idea how much this sum represents. Which individual is representing it challenging the state? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a overseas corporation contests it through an undemocratic arbitration panel, and a elected official represents its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was appointed, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case so far, but it seems likely that he may employ the arbitration process to challenge the sanctions the UK imposed on him following the war in Ukraine. He has previously filed a claim against a small nation for this reason, demanding a colossal sum: an amount representing half government’s annual revenue. Part of the counsel representing him there? Cherie Blair, wife of the former British prime minister.

International law scholars contend that the EU’s delay in utilising seized Russian assets as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, secretive influence over elected governments could be blocking the money Ukraine critically depends on.

False Assurances and Growing Threats

Politicians promised that such things could not occur. Years ago, a government leader, championing the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has not been a case in the past.” An expert on this issue labelled campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries needed to fear these lawsuits. Cautionary notes that “once firms grasp the authority they now possess, they will turn their attention from the weak nations to the strong ones” were dismissed with scepticism.

That warning is now a reality. In the current period, oil and gas and resource corporations have initiated a record number of suits against nations across the economic spectrum, challenging – as in the case of the UK mine – state efforts to halt global warming. Companies have to date won $114bn through ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP