🔗 Share this article

How do you reckon our political system works? Perhaps along the lines of this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. That's it. Yet, that was how it used to work. Not anymore.

The Rise of Secret Arbitration Panels

Nowadays, foreign corporations, and the oligarchs behind them, can sue nation states for the policies they pass, at private courts composed of business advocates. The cases are conducted in secret. In contrast to domestic courts, these tribunals provide no avenue for appeal or legal review. The general public cannot take a case to them, and neither can our government, or even companies operating from this country. Access is granted solely for corporations operating from foreign soil.

When a secret court finds that a government measure may compromise the corporation’s projected profits, it can award damages of vast sums, running into billions.

This compensation are based not on real financial harm but money the panel members conclude the company could potentially have made. The administration may have to drop the legislation. It is discouraged from introducing similar legislation in that area, due to the risk of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of disputes are being filed, as firms observe each other, and private equity finance suits in return for a portion of the settlements. The outcome? Sovereignty and democratic governance are now prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices enacted by legislatures is that this clause has been written – without public consent, and often in conditions of total confidentiality – within international trade agreements.

A Concrete Example: The UK Coalmine

Last year, a conservation group achieved a major legal triumph at the High Court. The judge determined that plans to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no impact on national carbon targets. The incoming administration later cancelled the consent the former government had granted. Now, this legal outcome could be compromised by an foreign court reporting to exclusively the corporations bringing the case.

In August, a firm whose beneficial owners are based in the Cayman Islands lodged a claim versus the UK government. Last week a arbitration panel in Washington DC was set up to hear it.

The company is litigating against the UK for the profits it would have generated if the mine had been permitted to proceed. Citizens have little idea how much this could amount to. Which individual is representing it in opposition to the British government? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a international entity disputes it through an secretive offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Challenge

On the same day that the court on the mining lawsuit was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he’ll use the tribunal to challenge the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has filed a claim against Luxembourg with similar intent, seeking a colossal sum: half that government’s yearly budget. Among the legal team acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Legal experts believe that the EU’s procrastination in leveraging immobilised Russian assets as security for its financial support package is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine desperately needs.

False Assurances and Escalating Risks

We were assured that such things could not occur. In 2014, a former prime minister, promoting the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this matter accused activists of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “when companies start to realise the power bestowed upon them, they will shift their focus from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction is now a reality. In the current period, fossil fuel and mining firms have initiated a record number of claims against nations both wealthy and developing, contesting – like the example of the Whitehaven project – state efforts to stop climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP