🔗 Share this article

What is your reckon our democratic process works? Perhaps something like this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills become law. The law are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, or the wealthy individuals behind them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels made up of commercial attorneys. Such disputes take place behind closed doors. Unlike our courts, these panels provide no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses operating from this country. Access is granted solely for entities based overseas.

When a secret court finds that a law or policy might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, running into billions.

These sums are based not on tangible damages but money the arbitrators determine the company could potentially have made. The state may have to abandon its policy. It becomes hesitant to passing future laws in that area, for fear of facing litigation.

A Process Running Rampant

Unprecedented levels of cases are being initiated, as firms learn from each other, and investment funds fund legal actions in exchange for a share of the takings. The consequence? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the rulings made by parliaments is that this provision has been inserted – without public consent, and typically amid a climate of profound opacity – into international trade agreements.

A Concrete Instance: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The justice determined that proposals to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine could have no consequence on climate commitments. The incoming administration later cancelled the licence the Tories had granted. Today, this victory could be compromised by an offshore tribunal accountable to no one but the corporations filing the suit.

During August, a corporate entity whose ultimate owners reside in the tax haven initiated proceedings against the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been allowed to commence operations. The public has little idea how much this might be. What legal team is serving as its counsel challenging the British government? A sitting MP, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a international entity disputes it through an undemocratic private court, and a sitting MP works for its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know scarce of the case to date, but it seems likely that he will utilise the arbitration process to contest the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against another European state on these grounds, demanding a colossal sum: equivalent to half of state's yearly income. Part of the counsel acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists argue that the EU’s hesitation in leveraging immobilised Russian assets as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a investment pact. This extraordinary, unaccountable authority over sovereign states could be blocking the finance Ukraine desperately needs.

False Assurances and Mounting Threats

Politicians promised that these scenarios could not occur. Years ago, a former prime minister, advocating for the biggest and most dangerous of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” An expert on this matter accused activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations should be concerned by such legal actions. Predictions that “once firms grasp the authority they’ve been granted, they will shift their focus from the poorer states to the developed economies” were met with scepticism.

That prediction has now materialised. This year, fossil fuel and mining firms have filed a record number of suits against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – state efforts to prevent global warming. Corporations have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured $84bn. That represents the combined GDP