🔗 Share this article

What is your understand our democratic process functions? It could be something like this. We elect MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. Yet, that’s how it once functioned. Not anymore.

The Advent of Offshore Arbitration Panels

Today, international firms, and the wealthy individuals who own them, are able to litigate against governments for the policies they pass, at secret arbitration panels made up of commercial attorneys. These proceedings take place away from public scrutiny. Unlike our courts, these bodies provide no avenue for appeal or judicial review. You or I are unable to file a case to them, just as our government, including businesses operating from this country. The door is open solely for businesses operating from foreign soil.

If a tribunal rules that a government measure could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions, potentially billions.

These awards constitute not tangible damages but funds the arbitrators decide the company might otherwise have made. The state may have to drop the legislation. It will be discouraged from introducing similar legislation of a similar nature, for fear of being sued.

A Process Running Rampant

Historically high figures of cases are being initiated, as companies take cues from each other, and investment funds finance suits in return for a portion of the awards. The outcome? Sovereignty and popular rule are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the decisions enacted by legislatures is that this provision has been inserted – without public consent, and typically amid an atmosphere of total confidentiality – inside bilateral investment treaties.

A Real-World Case: The Cumbrian Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that schemes to dig the first deep coalmine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the previous government, which had accepted the bizarre claim that the mine would have had no consequence on climate commitments. The incoming administration later cancelled the consent the former government had issued. Today, this success is under threat by an offshore tribunal accountable to no one but the entities bringing the case.

During August, a corporate entity whose beneficial owners are based in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

This firm is suing the UK for the revenue it would have generated if the mine had been permitted to proceed. We have no clear indication how much this might be. Which individual is serving as its counsel challenging the state? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the coal mine dispute was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know scarce of the case at present, but it appears probable that he may employ the tribunal to fight the penalties the UK enacted against him following the Russian aggression. He has already initiated proceedings against another European state on these grounds, demanding sixteen billion dollars: half that government’s annual revenue. Part of the lawyers on his side? the wife of a former prime minister, married to the previous PM.

International law scholars believe that the EU’s hesitation in leveraging immobilised state funds as security for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over democratic administrations may be obstructing the money Ukraine critically depends on.

False Assurances and Escalating Risks

The public was told that these scenarios were not possible. Years ago, a senior politician, promoting the biggest and most dangerous of all such treaties, told us: “We’ve signed trade agreement after trade deal and we have never seen a problem in the past.” An adviser on this issue labelled activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations needed to fear these lawsuits. Predictions that “as corporations grasp the power bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. In the current period, energy and extraction companies have lodged a historic level of suits against nations across the economic spectrum, contesting – like the example of the UK mine – official measures to stop environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP