🔗 Share this article

What is your perceive our system of government works? Maybe similar to this. We elect MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. The law are enforced by the courts. Simple as that. Well, that was how it operated in the past. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, international firms, or the oligarchs that control them, can sue elected administrations for the policies they pass, at offshore tribunals staffed by corporate lawyers. These proceedings take place away from public scrutiny. Differing from national judiciaries, these tribunals grant no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, including companies headquartered in this country. Access is granted exclusively to entities registered abroad.

Should an arbitration panel determines that a government measure may compromise the corporation’s anticipated profits, it can award damages of vast sums, even billions.

These sums represent not real financial harm but money the panel members conclude the company would perhaps have made. The government could be forced to rescind the measure. It will be discouraged from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of disputes are being initiated, as firms observe each other, and hedge funds fund legal actions in exchange for a portion of the takings. The consequence? Democratic sovereignty and popular rule are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the decisions taken by legislatures is that this clause has been inserted – without public consent, and frequently under a climate of profound opacity – within international trade agreements.

A Specific Case: The Cumbrian Coal Mine

Twelve months ago, a conservation group secured a significant win at the senior court. The judge found that plans to excavate the first major coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the licence the former government had granted. Currently, this victory faces being overturned by an secret arbitration panel accountable to only the companies bringing the case.

During August, a firm whose beneficial owners are located in the tax haven filed a lawsuit against the UK government. Recently a arbitration panel in Washington DC was set up to consider the case.

The company is litigating against the UK for the profits it could have earned if the mine had been permitted to go ahead. Citizens have no clear indication how much this could amount to. Which individual is representing it challenging the UK administration? A sitting MP, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The state passes a law, the domestic court validates it, then a foreign company disputes it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Challenge

On the same day that the panel on the coal mine dispute was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case at present, but it seems likely that he may employ the arbitration process to contest the restrictions the UK enacted against him following the war in Ukraine. He has started suing another European state on these grounds, seeking $16bn: equivalent to half of nation's yearly income. Among the legal team on his side? Cherie Blair, spouse of the previous PM.

Legal experts believe that the EU’s procrastination in using frozen Russian assets as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments could be blocking the finance Ukraine desperately needs.

Empty Promises and Escalating Risks

We were assured that such things wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all such treaties, declared: “Britain has agreed to trade deal upon trade deal and there has not been a issue in the past.” An adviser on this issue labelled campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “once firms start to realise the influence bestowed upon them, they will shift their focus from the weak nations to the strong ones” were greeted by widespread derision.

That threat has come to pass. Recently, energy and extraction companies have lodged a record number of cases against nations both wealthy and developing, opposing – like the example of the UK mine – state efforts to stop climate breakdown. Firms have so far won vast sums through ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP