🔗 Share this article

How do you understand our system of government functions? It could be something like this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills pass into law. Statutes is upheld by the courts. End of story. Well, that’s how it used to work. Those days are over.

The Advent of Shadow Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals behind them, are able to litigate against nation states for the policies they pass, at private courts staffed by commercial attorneys. Such disputes are held in secret. Differing from national judiciaries, these tribunals provide no right of appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, including businesses headquartered in this country. Access is granted solely for entities registered abroad.

If a tribunal determines that a legislative action might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

This compensation represent not actual losses but compensation the panel members determine the company could potentially have made. The administration could be forced to rescind the measure. It becomes hesitant to introducing similar legislation along the same lines, worried about being sued.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as firms observe each other, and investment funds fund legal actions for a share of a share of the settlements. The result? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the decisions taken by legislatures is that this stipulation has been inserted – absent public approval, and typically amid a climate of profound opacity – within trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The judge ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The new government subsequently revoked the licence the previous administration had approved. Now, this legal outcome faces being overturned by an foreign court reporting to only the companies filing the suit.

Last August, a corporate entity whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

This firm is suing the UK for the profits it would have generated if the mine had been permitted to proceed. Citizens have no clear indication how much this might be. What legal team is serving as its counsel against the state? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court upholds it, then a overseas corporation contests it through an secretive arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Case

On the same day that the panel on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know little of the case at present, but it seems likely that he will utilise the ISDS mechanism to contest the restrictions the UK enacted against him following the war in Ukraine. He has previously filed a claim against Luxembourg with similar intent, claiming sixteen billion dollars: equivalent to half of government’s yearly budget. Among the lawyers on his side? the wife of a former prime minister, spouse of the previous PM.

Trade specialists believe that the EU’s delay in using frozen oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations may be obstructing the finance Ukraine urgently requires.

False Assurances and Escalating Threats

The public was told that these scenarios could not occur. Previously, a former prime minister, championing the largest and riskiest of all these agreements, told us: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An adviser on this matter described activists of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “once firms grasp the power they’ve been granted, they will turn their attention from the poorer states to the developed economies” were greeted by widespread derision.

That prediction has now materialised. Recently, energy and extraction companies have lodged a record number of cases against nations rich and poor, opposing – similar to the Whitehaven project – government attempts to prevent environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured $84bn. That equates to the combined GDP