🔗 Share this article

What is your understand our system of government functions? Perhaps similar to this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Emergence of Shadow Arbitration Panels

Today, overseas companies, and the billionaires behind them, can sue elected administrations for the policies they pass, at private courts staffed by business advocates. These proceedings take place behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, or even companies operating from this country. They are open exclusively to businesses operating from foreign soil.

If a tribunal rules that a government measure might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, even billions.

This compensation are based not on actual losses but funds the tribunal officials determine the company could potentially have made. The state may have to drop the legislation. It becomes deterred from introducing similar legislation along the same lines, worried about facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being initiated, as firms take cues from each other, and private equity fund legal actions for a share of a portion of the settlements. The outcome? National sovereignty and popular rule are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the decisions enacted by elected bodies is that this provision has been inserted – without democratic mandate, and typically amid conditions of profound opacity – into bilateral investment treaties.

A Real-World Example: The UK Coalmine

Twelve months ago, environmental campaigners won a great victory at the high court. The judge found that proposals to dig the first new deep coal mine in the UK for three decades, in northwest England, were found to be wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have zero effect on national carbon targets. The new government then withdrew the consent the previous administration had granted. Currently, this legal outcome could be compromised by an offshore tribunal answering to no one but the companies filing the suit.

During August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings against the UK government. Recently a arbitration panel in the US capital was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. Citizens have little idea how much this sum represents. Which individual is representing it challenging the UK administration? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The administration passes a law, the high court upholds it, then a foreign company contests it through an unaccountable arbitration panel, and a elected official works for its behalf.

A Sanctions Challenge

Concurrently that the panel on the coal mine dispute was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case at present, but it is highly possible that he’ll use the ISDS mechanism to contest the penalties the UK enacted against him following the war in Ukraine. He has already started suing Luxembourg for this reason, seeking sixteen billion dollars: an amount representing half state's yearly budget. Included in the counsel acting for him in that case? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists contend that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations could be blocking the funds Ukraine urgently requires.

False Assurances and Growing Costs

Politicians promised that such things were not possible. In 2014, a former prime minister, advocating for the largest and riskiest of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” An expert on this topic accused activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states needed to fear these lawsuits. Warnings that “as corporations grasp the power they now possess, they will shift their focus from the weak nations to the developed economies” were met with general mockery.

That threat is now a reality. This year, fossil fuel and mining firms have initiated a record number of cases against nations rich and poor, opposing – as in the case of the Whitehaven project – state efforts to prevent global warming. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP