🔗 Share this article

What is your reckon our system of government functions? It could be similar to this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills pass into law. Statutes is maintained by the courts. End of story. However, that’s how it operated in the past. Those days are over.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, and the billionaires who own them, can sue governments for the laws they pass, at offshore tribunals composed of corporate lawyers. The cases take place away from public scrutiny. In contrast to domestic courts, these panels grant no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even businesses based in this country. The door is open exclusively to corporations registered abroad.

Should an arbitration panel determines that a government measure could harm the corporation’s projected profits, it may order damages of vast sums, even billions.

These sums represent not tangible damages but compensation the panel members decide the company would perhaps have made. The state could be forced to abandon its policy. It becomes discouraged from enacting future policies in that area, for fear of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being filed, as firms observe each other, and hedge funds fund legal actions for a share of a portion of the takings. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices enacted by legislatures is that this stipulation has been incorporated – absent public approval, and often in a climate of profound opacity – into trade treaties.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The judge found that proposals to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have no consequence on climate commitments. The incoming administration later cancelled the consent the former government had granted. Today, this victory faces being overturned by an secret arbitration panel reporting to no one but the entities petitioning it.

During August, a firm whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. Last week a arbitration panel in Washington DC was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it might have made if the mine had been allowed to proceed. We have no idea how much this could amount to. Which individual is serving as its counsel challenging the UK administration? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The administration passes a law, the high court supports it, then a foreign company contests it through an secretive private court, and a elected official represents its behalf.

The Russian Case

On the same day that the panel on the mining lawsuit was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it seems likely that he will utilise the arbitration process to contest the sanctions the UK imposed on him subsequent to the war in Ukraine. He has already started suing another European state for this reason, claiming a colossal sum: an amount representing half nation's yearly budget. Part of the counsel on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s procrastination in leveraging immobilised state funds as collateral for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over sovereign states may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Risks

Politicians promised that these scenarios were not possible. In 2014, a government leader, championing the largest and riskiest of all investment pacts, declared: “The UK has signed trade deal after trade deal and there has not been a case in the past.” An expert on this topic accused campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about such legal actions. Cautionary notes that “once firms begin to understand the authority they now possess, they will shift their focus from the weak nations to the developed economies” were met with general mockery.

That warning is now a reality. This year, energy and extraction companies have filed a historic level of cases against nations rich and poor, contesting – similar to the Whitehaven project – official measures to prevent climate breakdown. Corporations have thus far won vast sums through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP