🔗 Share this article

Can you reckon our political system operates? Perhaps something like this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills pass into law. Statutes is maintained by the courts. That's it. Yet, that used to be how it used to work. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, and the wealthy individuals behind them, are able to litigate against nation states for the laws they pass, at private courts made up of corporate lawyers. These proceedings take place away from public scrutiny. Differing from national judiciaries, these bodies provide no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even businesses headquartered in this country. The door is open exclusively to entities operating from foreign soil.

Should an arbitration panel rules that a law or policy could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These awards constitute not actual losses but funds the arbitrators conclude the company would perhaps have made. The state may have to drop the legislation. It becomes deterred from introducing similar legislation along the same lines, due to the risk of facing litigation.

A Mechanism Running Rampant

Record numbers of disputes are being filed, as firms observe each other, and private equity finance suits for a share of a cut of the awards. The result? National sovereignty and democratic governance are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the choices made by elected bodies is that this stipulation has been inserted – absent public approval, and frequently under a climate of profound opacity – within international trade agreements.

A Specific Example: The Whitehaven Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer found that plans to dig the first deep coalmine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The new government later cancelled the licence the former government had issued. Now, this legal outcome is under threat by an offshore tribunal reporting to no one but the entities filing the suit.

In August, a firm whose beneficial owners are located in the Cayman Islands initiated proceedings challenging the UK government. Recently a arbitration panel in Washington DC was set up to hear it.

This firm is litigating against the UK for the profits it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this might be. What legal team is acting on its behalf against the state? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the national judiciary validates it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

The Russian Case

Simultaneously that the tribunal on the mining lawsuit was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know scarce of the case to date, but it seems likely that he will utilise the arbitration process to contest the sanctions the UK imposed on him after the war in Ukraine. He has already started suing Luxembourg with similar intent, claiming a colossal sum: equivalent to half of state's yearly budget. Among the legal team representing him there? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars contend that the EU’s hesitation in using frozen oligarchs' funds as security for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

False Assurances and Escalating Threats

We were assured that such things could not occur. In 2014, a senior politician, championing the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and we have never seen a case in the past.” An expert on this matter labelled activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies grasp the power they’ve been granted, they will turn their attention from the poorer states to the strong ones” were dismissed with general mockery.

That threat is now a reality. Recently, energy and mining firms have filed a record number of cases against nations both wealthy and developing, challenging – like the example of the UK mine – official measures to prevent climate breakdown. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP