🔗 Share this article

How do you understand our democratic process works? Maybe something like this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. That's it. However, that’s how it operated in the past. No longer.

The Advent of Secret Arbitration Panels

Nowadays, international firms, and the oligarchs that control them, can sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. The cases take place away from public scrutiny. Unlike our courts, these bodies provide no opportunity to appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies headquartered in this country. They are open only to businesses operating from foreign soil.

If a tribunal determines that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of vast sums, even billions.

These awards are based not on real financial harm but compensation the panel members determine the company would perhaps have made. The administration may have to rescind the measure. It is deterred from passing future laws in that area, for fear of incurring a lawsuit.

A Process Growing Exponentially

Historically high figures of legal actions are being initiated, as companies take cues from each other, and private equity finance suits in return for a cut of the settlements. The outcome? Sovereignty and popular rule are now too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the rulings taken by legislatures is that this clause has been inserted – absent public approval, and frequently under a climate of profound opacity – within trade treaties.

A Specific Example: The Cumbrian Coal Mine

Last year, a conservation group secured a significant win at the senior court. The presiding officer determined that schemes to open the first deep coalmine in the UK for three decades, in northwest England, had been wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The incoming administration then withdrew the licence the former government had approved. Now, this success could be compromised by an offshore tribunal answering to exclusively the entities bringing the case.

During August, a corporate entity whose final controllers reside in the tax haven initiated proceedings challenging the UK government. Last week a arbitration panel in Washington DC was set up to adjudicate on it.

This firm is suing the UK for the revenue it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this might be. What legal team is serving as its counsel in opposition to the UK administration? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary validates it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

Concurrently that the court on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know little of the case at present, but it is highly possible that he’ll use the ISDS mechanism to fight the penalties the UK imposed on him following the invasion of Ukraine. He has already initiated proceedings against Luxembourg on these grounds, seeking sixteen billion dollars: equivalent to half of nation's annual revenue. Part of the lawyers representing him there? a prominent lawyer, wife of the ex-UK leader.

Legal experts believe that the EU’s procrastination in using frozen state funds as collateral for its financial support package stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over elected governments may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Mounting Threats

We were assured that such things wouldn’t happen. Years ago, a government leader, championing the largest and riskiest of all such treaties, told us: “We’ve signed trade agreement after trade deal and there has never been a problem in the past.” A consultant on this issue described critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries had to worry about such legal actions. Predictions that “as corporations start to realise the influence they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were met with general mockery.

That threat has come to pass. In the current period, energy and extraction companies have filed a record number of claims against nations both wealthy and developing, contesting – similar to the Whitehaven project – government attempts to prevent climate breakdown. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP