🔗 Share this article

How do you reckon our political system works? It could be something like this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills become law. Legislation are enforced by the courts. End of story. Well, that used to be how it used to work. No longer.

The Emergence of Secret Arbitration Panels

Today, international firms, or the oligarchs who own them, have the power to sue elected administrations for the laws they pass, at private courts made up of commercial attorneys. The cases take place in secret. Differing from national judiciaries, these bodies allow no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even enterprises based in this country. The door is open only to entities operating from foreign soil.

Should an arbitration panel finds that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These awards represent not tangible damages but compensation the tribunal officials determine the company could potentially have made. The state could be forced to abandon its policy. It is discouraged from enacting future policies along the same lines, worried about facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being filed, as corporations observe each other, and private equity fund legal actions in return for a portion of the takings. The outcome? Democratic sovereignty and democratic governance are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the decisions enacted by elected bodies is that this clause has been incorporated – without democratic mandate, and often in a climate of extreme secrecy – inside trade treaties.

A Concrete Case: The Cumbrian Coal Mine

A year ago, activists won a great victory at the high court. The justice found that schemes to excavate the first new deep coal mine in the UK for a generation, in northwest England, were found to be wrongly permitted by the previous government, which had accepted the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration then withdrew the consent the previous administration had granted. Currently, this legal outcome could be compromised by an offshore tribunal accountable to only the entities filing the suit.

Last August, a firm whose beneficial owners are located in the tax haven filed a lawsuit versus the UK government. Recently a tribunal in Washington DC was set up to consider the case.

The company is suing the UK for the profits it would have generated if the mine had been permitted to proceed. Citizens have little idea how much this might be. What legal team is acting on its behalf against the British government? An elected representative, and former attorney-general in the previous government, the noted patriot the MP. The government makes a decision, the domestic court validates it, then a international entity challenges it through an secretive private court, and a elected official represents its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the coalmine case was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case to date, but it appears probable that he’ll use the arbitration process to fight the restrictions the UK imposed on him subsequent to the Russian aggression. He has filed a claim against a small nation on these grounds, claiming a colossal sum: half that state's yearly budget. Among the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized Russian assets as collateral for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over democratic administrations may be obstructing the funds Ukraine desperately needs.

False Assurances and Growing Risks

The public was told that such things were not possible. Years ago, a senior politician, advocating for the biggest and most dangerous of all these agreements, declared: “Britain has agreed to investment treaty upon trade deal and we have never seen a issue in the past.” An adviser on this topic accused critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations should be concerned by such legal actions. Predictions that “when companies grasp the power they’ve been granted, they will shift their focus from the weak nations to the developed economies” were met with scepticism.

That threat is now a reality. This year, energy and resource corporations have lodged a historic level of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Corporations have so far won $114bn through ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP