🔗 Share this article

Can you reckon our political system works? Maybe something like this. We elect MPs. They vote on bills. When a majority is achieved, the bills pass into law. Statutes is upheld by the courts. Simple as that. However, that’s how it used to work. Not anymore.

The Rise of Secret Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals behind them, have the power to sue nation states for the regulations they pass, at private courts staffed by corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these tribunals provide no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, including businesses operating from this country. Access is granted only to entities based overseas.

If a tribunal determines that a legislative action might diminish the corporation’s projected profits, it may order financial penalties of hundreds of millions, potentially billions.

These sums represent not actual losses but money the tribunal officials decide the company could potentially have made. The administration could be forced to abandon its policy. It will be discouraged from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of legal actions are being brought, as companies learn from each other, and investment funds bankroll lawsuits in return for a cut of the takings. 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 is permitted to override domestic law and the rulings enacted by legislatures is that this stipulation has been inserted – absent public approval, and often in an atmosphere of profound opacity – within international trade agreements.

A Real-World Case: The Whitehaven Coal Mine

Last year, activists won a great victory at the high court. The justice found that plans to excavate the first deep coalmine in the UK for 30 years, in Cumbria, had been wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine could have no impact on national carbon targets. The incoming administration then withdrew the licence the Tories had approved. Today, this success is under threat by an foreign court answering to exclusively the entities filing the suit.

In August, a firm whose ultimate owners are located in the offshore financial centre initiated proceedings versus the UK government. Last week a arbitration panel in the United States was established to hear it.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to proceed. Citizens have no clear indication how much this could amount to. Which individual is serving as its counsel against the state? A sitting MP, and former attorney-general in the Conservative government, that great patriot the MP. The state passes a law, the high court upholds it, then a international entity challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the court on the mining lawsuit was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know scarce of the case so far, but it appears probable that he will utilise the ISDS mechanism to challenge the restrictions the UK enacted against him after the war in Ukraine. He has already filed a claim against Luxembourg on these grounds, demanding a colossal sum: an amount representing half state's yearly income. Included in the lawyers representing him there? Cherie Blair, wife of the former British prime minister.

Trade specialists contend that the EU’s procrastination in utilising seized oligarchs' funds as security for its loan to Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over sovereign states may be obstructing the money Ukraine critically depends on.

Empty Promises and Escalating Risks

The public was told that such things wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and there has not been a issue in the past.” An adviser on this issue labelled activists of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by these lawsuits. Cautionary notes that “when companies start to realise the authority they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were greeted by scepticism.

That threat has come to pass. This year, energy and mining firms have filed a record number of cases against nations rich and poor, challenging – like the example of the Whitehaven project – state efforts to halt global warming. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP