🔗 Share this article

Can you reckon our political system operates? Maybe something like this. We elect MPs. They legislate on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Emergence of Shadow Arbitration Panels

Today, international firms, or the billionaires who own them, have the power to sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted in secret. Unlike our courts, these bodies grant no right of appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even enterprises based in this country. Access is granted solely for entities registered abroad.

When a secret court rules that a government measure may compromise the corporation’s expected profits, it can award compensation of hundreds of millions, running into billions.

These awards constitute not actual losses but money the panel members determine the company would perhaps have made. The administration may have to drop the legislation. It will be hesitant to introducing similar legislation in that area, worried about facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of cases are being initiated, as corporations learn from each other, and hedge funds fund legal actions for a share of a cut of the awards. The outcome? National sovereignty and democracy are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the rulings enacted by elected bodies is that this provision has been incorporated – without public consent, and often in an atmosphere of total confidentiality – inside trade treaties.

A Specific Example: The UK Coal Mine

Last year, activists won a great victory at the high court. The judge found that schemes to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had endorsed the extraordinary assertion that the mine would have no consequence on national carbon targets. The incoming administration then withdrew the consent the previous administration had issued. Now, this success faces being overturned by an offshore tribunal reporting to no one but the entities petitioning it.

Last August, a corporate entity whose final controllers reside in the Cayman Islands initiated proceedings challenging the UK government. Last week a arbitration panel in the US capital was established to consider the case.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to go ahead. Citizens have little idea how much this could amount to. Who is acting on its behalf against the British government? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The government passes a law, the high court upholds it, then a foreign company challenges it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Case

On the same day that the panel on the coalmine case was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case to date, but it seems likely that he will utilise the tribunal to fight the sanctions the UK imposed on him after the Russian aggression. He has previously started suing another European state for this reason, seeking a colossal sum: half that government’s yearly budget. Among the lawyers representing him there? a prominent lawyer, married to the ex-UK leader.

Trade specialists argue that the EU’s delay in leveraging immobilised state funds as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

False Assurances and Growing Threats

The public was told that these scenarios could not occur. Years ago, a government leader, championing the largest and riskiest of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An adviser on this issue accused critics of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “once firms start to realise the authority they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were greeted by general mockery.

That prediction has now materialised. Recently, oil and gas and mining firms have lodged a unprecedented number of claims against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – government attempts to halt global warming. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP