🔗 Share this article

How do you understand our system of government works? It could be similar to this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills pass into law. Legislation is maintained by the courts. End of story. Well, that was how it once functioned. Not anymore.

The Rise of Secret Arbitration Panels

Today, international firms, and the wealthy individuals who own them, can sue nation states for the policies they pass, at offshore tribunals staffed by business advocates. Such disputes take place in secret. Differing from national judiciaries, these bodies grant no right of appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even companies headquartered in this country. The door is open solely for entities operating from foreign soil.

Should an arbitration panel rules that a law or policy could harm the corporation’s anticipated profits, it has the power to grant compensation of vast sums, running into billions.

This compensation are based not on real financial harm but money the arbitrators determine the company might otherwise have made. The government may have to drop the legislation. It is discouraged from introducing similar legislation of a similar nature, for fear of facing litigation.

A System Growing Exponentially

Record numbers of disputes are being filed, as corporations learn from each other, and hedge funds finance suits in return for a share of the settlements. The outcome? Democratic sovereignty and democratic governance are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the decisions enacted by elected bodies is that this provision has been written – without public consent, and often in conditions of profound opacity – into international trade agreements.

A Concrete Case: The UK Coalmine

Last year, environmental campaigners won a great victory at the senior court. The presiding officer ruled that schemes to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had zero effect on climate commitments. The new government subsequently revoked the consent the previous administration had approved. Today, this success could be compromised by an secret arbitration panel answering to only the companies bringing the case.

During August, a company whose beneficial owners are based in the Cayman Islands initiated proceedings versus the UK government. Recently a tribunal in the US capital was convened to consider the case.

This firm is suing the UK for the money it could have earned if the mine had been permitted to commence operations. We have no clear indication how much this could amount to. What legal team is acting on its behalf in opposition to the state? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The government makes a decision, the national judiciary upholds it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Case

On the same day that the panel on the coalmine case was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case to date, but it appears probable that he will utilise the ISDS mechanism to fight the restrictions the UK levied against him following the Russian aggression. He has previously filed a claim against a small nation for this reason, seeking $16bn: half that government’s yearly budget. Part of the lawyers acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

International law scholars believe that the EU’s procrastination in utilising seized oligarchs' funds as security for its financial support package is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Costs

The public was told that these events were not possible. Previously, a senior politician, championing the largest and riskiest of all investment pacts, told us: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An adviser on this issue described campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states needed to fear these lawsuits. Predictions that “once firms start to realise the authority they now possess, they will shift their focus from the poorer states to the strong ones” were dismissed with widespread derision.

That warning is now a reality. This year, oil and gas and mining firms have filed a unprecedented number of suits against nations across the economic spectrum, challenging – like the example of the UK mine – government attempts to prevent global warming. Corporations have thus far won vast sums by using ISDS, of which oil majors have obtained the majority. That equates to the combined GDP