🔗 Share this article

How do you perceive our political system works? Maybe something like this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. The law is upheld by the courts. End of story. Well, that used to be how it operated in the past. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, foreign corporations, and the oligarchs that control them, can sue elected administrations for the regulations they pass, at offshore tribunals staffed by business advocates. The cases are held away from public scrutiny. In contrast to domestic courts, these bodies provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even enterprises operating from this country. The door is open solely for corporations based overseas.

Should an arbitration panel finds that a law or policy may compromise the corporation’s anticipated profits, it can award financial penalties of vast sums, running into billions.

These awards represent not real financial harm but compensation the arbitrators determine the company might otherwise have made. The administration might be compelled to drop the legislation. It will be discouraged from passing future laws along the same lines, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being initiated, as corporations learn from each other, and investment funds bankroll lawsuits in return for a cut of the awards. The consequence? Democratic sovereignty and democratic governance are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the rulings enacted by parliaments is that this stipulation has been written – without public consent, and frequently under a climate of profound opacity – within trade treaties.

A Specific Instance: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the High Court. The justice ruled that schemes to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had endorsed the questionable argument that the mine would have zero effect on climate commitments. The Labour government later cancelled the consent the Tories had approved. Now, this victory faces being overturned by an offshore tribunal reporting to no one but the corporations bringing the case.

Last August, a company whose final controllers are based in the Cayman Islands lodged a claim against the UK government. Last week a dispute settlement body in the US capital was convened to consider the case.

This firm is litigating against the UK for the money it might have made if the mine had been permitted to commence operations. We have little idea how much this sum represents. What legal team is acting on its behalf against the state? A sitting MP, and ex-law officer in the Conservative government, that great patriot the MP. The state enacts a policy, the high court validates it, then a overseas corporation challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the coalmine case was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case to date, but it is highly possible that he’ll use the arbitration process to fight the penalties the UK levied against him subsequent to the Russian aggression. He has previously started suing another European state with similar intent, demanding a colossal sum: equivalent to half of government’s yearly income. Among the counsel acting for him in that case? Cherie Blair, married to the ex-UK leader.

International law scholars believe that the EU’s delay in utilising seized state funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, unaccountable authority over democratic administrations could be blocking the funds Ukraine desperately needs.

Empty Promises and Mounting Threats

The public was told that such things wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” A consultant on this topic described campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms grasp the influence bestowed upon them, they will shift their focus from the poorer states to the developed economies” were greeted by general mockery.

That threat has come to pass. In the current period, energy and extraction companies have initiated a unprecedented number of suits against nations across the economic spectrum, contesting – like the example of the Whitehaven project – official measures to stop climate breakdown. Firms have thus far won vast sums via ISDS, of which oil majors have obtained the majority. That equates to the combined GDP