🔗 Share this article

How do you understand our democratic process operates? It could be along the lines of this. We elect MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. End of story. Yet, that used to be how it once functioned. No longer.

The Advent of Secret Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are held away from public scrutiny. Unlike our courts, these tribunals allow no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses based in this country. Access is granted only to businesses operating from foreign soil.

If a tribunal rules that a legislative action could harm the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

These awards constitute not tangible damages but money the panel members decide the company would perhaps have made. The government might be compelled to rescind the measure. It is hesitant to introducing similar legislation in that area, for fear of being sued.

A Process Growing Exponentially

Unprecedented levels of cases are being filed, as firms observe each other, and investment funds bankroll lawsuits for a share of a share of the settlements. The result? Democratic sovereignty and popular rule are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the rulings enacted by legislatures is that this clause has been inserted – absent public approval, and often in an atmosphere of extreme secrecy – into trade treaties.

A Real-World Instance: The Cumbrian Coalmine

A year ago, activists achieved a major legal triumph at the high court. The presiding officer determined that plans to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were unlawfully approved by the previous government, which had agreed to the questionable argument that the mine could have no impact on climate commitments. The incoming administration subsequently revoked the consent the former government had issued. Now, this success faces being overturned by an foreign court answering to no one but the corporations petitioning it.

In August, a corporate entity whose ultimate owners are located in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in the US capital was set up to hear it.

This firm is suing the UK for the profits it might have made if the mine had been allowed to proceed. Citizens have little idea how much this could amount to. What legal team is representing it in opposition to the UK administration? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The state enacts a policy, the domestic court validates it, then a international entity challenges it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

A Sanctions Challenge

On the same day that the panel on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK enacted against him following the war in Ukraine. He has initiated proceedings against another European state for this reason, claiming $16bn: equivalent to half of nation's yearly budget. Included in the counsel on his side? a prominent lawyer, married to the ex-UK leader.

Trade specialists believe that the EU’s delay in utilising seized state funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Mounting Risks

The public was told that these scenarios wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all these agreements, told us: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this matter accused critics of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Predictions that “once firms begin to understand the authority they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were met with widespread derision.

That prediction is now a reality. In the current period, fossil fuel and extraction companies have lodged a record number of claims against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to prevent environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP