🔗 Share this article

How do you understand our democratic process functions? Maybe similar to this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that was how it used to work. Those days are over.

The Rise of Offshore Arbitration Panels

Nowadays, international firms, or the billionaires that control them, have the power to sue nation states for the regulations they pass, at private courts made up of commercial attorneys. The cases are conducted away from public scrutiny. Differing from national judiciaries, these tribunals provide no avenue for appeal or legal review. The general public are unable to file a case to them, nor can our government, including enterprises based in this country. The door is open solely for entities based overseas.

When a secret court determines that a government measure might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions, potentially billions.

These awards represent not real financial harm but funds the panel members determine the company would perhaps have made. The administration may have to drop the legislation. It will be hesitant to enacting future policies in that area, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Record numbers of disputes are being initiated, as corporations learn from each other, and private equity bankroll lawsuits in return for a share of the settlements. The outcome? Democratic sovereignty and democracy are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override a country's own laws and the rulings enacted by elected bodies is that this provision has been written – absent public approval, and typically amid an atmosphere of total confidentiality – into trade treaties.

A Specific Case: The Whitehaven Coal Mine

A year ago, activists won a great victory at the senior court. The presiding officer ruled that schemes to dig the first new deep coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have zero effect on climate commitments. The incoming administration subsequently revoked the permission the former government had granted. Today, this legal outcome faces being overturned by an foreign court reporting to only the companies petitioning it.

Last August, a firm whose ultimate owners are located in the offshore financial centre initiated proceedings against the UK government. Last week a tribunal in the US capital was set up to adjudicate on it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has little idea how much this might be. What legal team is acting on its behalf against the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the high court upholds it, then a overseas corporation contests it through an secretive private court, and a member of our parliament works for its behalf.

An Oligarch's Challenge

Concurrently that the court on the coal mine dispute was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are nothing of the case at present, but it is highly possible that he’ll use the ISDS mechanism to challenge the penalties the UK enacted against him after the invasion of Ukraine. He has filed a claim against Luxembourg with similar intent, seeking sixteen billion dollars: half that state's yearly budget. Part of the counsel representing him there? the wife of a former prime minister, married to the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized Russian assets as collateral for its financial support package is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments may be obstructing the finance Ukraine critically depends on.

Empty Promises and Escalating Risks

Politicians promised that such things wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all investment pacts, told us: “The UK has signed trade deal after trade deal and there has never been a problem in the past.” An expert on this issue accused activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies grasp the power bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.

That threat is now a reality. Recently, energy and resource corporations have lodged a unprecedented number of cases against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – official measures to stop global warming. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP