🔗 Share this article

Can you reckon our system of government works? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. That's it. Yet, that used to be how it used to work. No longer.

The Advent of Secret Arbitration Panels

In the modern era, international firms, or the billionaires who own them, can sue governments for the laws they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these tribunals provide no avenue for appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even companies headquartered in this country. They are open exclusively to entities registered abroad.

Should an arbitration panel rules that a legislative action could harm the corporation’s projected profits, it can award financial penalties of vast sums, potentially billions.

These sums are based not on tangible damages but money the panel members determine the company could potentially have made. The administration might be compelled to drop the legislation. It will be discouraged from enacting future policies along the same lines, worried about incurring a lawsuit.

A System Growing Exponentially

Record numbers of legal actions are being brought, as corporations take cues from each other, and hedge funds finance suits in return for a cut of the takings. The result? Sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the choices made by elected bodies is that this provision has been inserted – without democratic mandate, and often in conditions of profound opacity – within bilateral investment treaties.

A Concrete Case: The UK Coal Mine

A year ago, activists secured a significant win at the high court. The judge ruled that schemes to dig the first deep coalmine in the UK for a generation, in northwest England, were found to be unlawfully approved by the previous government, which had endorsed the questionable argument that the mine would have no consequence on our carbon budgets. The Labour government then withdrew the licence the Tories had approved. Today, this legal outcome faces being overturned by an foreign court accountable to only the corporations bringing the case.

In August, a corporate entity whose final controllers are located in the Cayman Islands initiated proceedings versus the UK government. Recently a dispute settlement body in the United States was convened to adjudicate on it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had received permission to go ahead. We have no clear indication how much this might be. What legal team is serving as its counsel challenging the British government? A sitting MP, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The government passes a law, the national judiciary upholds it, then a international entity challenges it through an undemocratic offshore tribunal, and a elected official represents its behalf.

A Sanctions Challenge

Concurrently that the court on the coalmine case was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case so far, but it seems likely that he will utilise the ISDS mechanism to fight the penalties the UK levied against him following the Russian aggression. He has already started suing Luxembourg on these grounds, claiming sixteen billion dollars: half that government’s yearly budget. Among the counsel acting for him in that case? a prominent lawyer, married to the ex-UK leader.

Legal experts contend that the EU’s hesitation in utilising seized state funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over sovereign states might be preventing the money Ukraine critically depends on.

False Assurances and Mounting Risks

The public was told that such things were not possible. Previously, a senior politician, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and there has not been a problem in the past.” An expert on this topic labelled campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by such legal actions. Predictions that “once firms begin to understand the authority bestowed upon them, they will shift their focus from the poorer states to the wealthy nations” were greeted by widespread derision.

That warning is now a reality. Recently, energy and extraction companies have lodged a record number of cases against nations across the economic spectrum, opposing – like the example of the Whitehaven project – official measures to prevent climate breakdown. Companies have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained $84bn. That represents the combined GDP