🔗 Share this article

What is your understand our system of government functions? It could be something like this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills pass into law. The law is maintained by the courts. End of story. Yet, that used to be how it used to work. Those days are over.

The Rise of Shadow Arbitration Panels

Today, international firms, and the wealthy individuals behind them, can sue nation states for the policies they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes take place away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, and neither can our government, or even companies headquartered in this country. The door is open exclusively to businesses operating from foreign soil.

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

These awards constitute not actual losses but money the tribunal officials decide the company might otherwise have made. The state might be compelled to drop the legislation. It is hesitant to enacting future policies of a similar nature, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Record numbers of cases are being initiated, as corporations take cues from each other, and investment funds fund legal actions for a share of a cut of the awards. The consequence? Democratic sovereignty and democracy are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the decisions made by legislatures is that this provision has been written – without public consent, and often in an atmosphere of profound opacity – within trade treaties.

A Concrete Instance: The UK Coal Mine

Last year, a conservation group won a great victory at the senior court. The presiding officer determined that schemes to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no consequence on climate commitments. The new government subsequently revoked the permission the former government had approved. Currently, this success is under threat by an offshore tribunal reporting to only the entities bringing the case.

Last August, a company whose final controllers are located in the tax haven filed a lawsuit versus the UK government. Recently a arbitration panel in the United States was set up to adjudicate on it.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had received permission to go ahead. The public has no clear indication how much this might be. Who is representing it in opposition to the state? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The government passes a law, the national judiciary upholds it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the mining lawsuit was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it appears probable that he may employ the arbitration process to fight the penalties the UK levied against him following the invasion of Ukraine. He has already filed a claim against another European state on these grounds, claiming $16bn: an amount representing half government’s yearly income. Among the legal team acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars argue that the EU’s procrastination in leveraging immobilised state funds as security for its loan to Ukraine arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over elected governments may be obstructing the finance Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that such things were not possible. Previously, a government leader, championing the most significant and hazardous of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and there has never been a case in the past.” An adviser on this matter accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries needed to fear such legal actions. Cautionary notes that “once firms start to realise the authority bestowed upon them, they will turn their attention from the weak nations to the developed economies” were met with scepticism.

That threat has now materialised. This year, oil and gas and mining firms have initiated a historic level of claims against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – government attempts to halt global warming. Corporations have so far won vast sums through ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP