🔗 Share this article

What is your reckon our political system functions? Perhaps similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills become law. Statutes are enforced by the courts. Simple as that. Well, that was how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

Nowadays, overseas companies, and the wealthy individuals who own them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are held in secret. In contrast to domestic courts, these tribunals allow no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, or even companies based in this country. Access is granted exclusively to entities based overseas.

Should an arbitration panel determines that a law or policy could harm the corporation’s anticipated profits, it can award compensation of vast sums, even billions.

These awards constitute not tangible damages but money the tribunal officials conclude the company could potentially have made. The administration might be compelled to abandon its policy. It will be deterred from passing future laws of a similar nature, worried about facing litigation.

A Process Spiralling Out of Control

Historically high figures of legal actions are being brought, as corporations observe each other, and hedge funds fund legal actions in return for a cut of the takings. The consequence? Democratic sovereignty and democracy are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the choices taken by legislatures is that this provision has been incorporated – without democratic mandate, and frequently under a climate of profound opacity – inside international trade agreements.

A Specific Example: The Whitehaven Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The judge determined that schemes to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have zero effect on our carbon budgets. The new government subsequently revoked the licence the former government had approved. Now, this success could be compromised by an offshore tribunal accountable to exclusively the companies petitioning it.

Last August, a firm whose beneficial owners reside in the Cayman Islands initiated proceedings versus the UK government. The previous week a arbitration panel in the US capital was established to consider the case.

The company is litigating against the UK for the money it might have made if the mine had been permitted to proceed. Citizens have no idea how much this might be. Which individual is representing it in opposition to the state? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government makes a decision, the national judiciary upholds it, then a international entity challenges it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows little of the case to date, but it seems likely that he may employ the ISDS mechanism to fight the restrictions the UK imposed on him following the war in Ukraine. He has initiated proceedings against Luxembourg with similar intent, seeking $16bn: half that state's yearly budget. Among the legal team on his side? Cherie Blair, married to the previous PM.

Trade specialists believe that the EU’s procrastination in utilising seized Russian assets as collateral for its financial support package is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over democratic administrations could be blocking the funds Ukraine desperately needs.

False Assurances and Mounting Costs

Politicians promised that these scenarios were not possible. In 2014, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to investment treaty upon trade deal and there has not been a problem in the past.” An expert on this matter labelled campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear such legal actions. Warnings that “as corporations start to realise the power bestowed upon them, they will turn their attention from the weak nations to the strong ones” were dismissed with scepticism.

That warning is now a reality. Recently, oil and gas and resource corporations have lodged a historic level of suits against nations rich and poor, opposing – similar to the Whitehaven project – government attempts to halt global warming. Companies have to date won $114bn through ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP