🔗 Share this article

What is your understand our system of government works? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Legislation is upheld by the courts. End of story. Yet, that used to be how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

In the modern era, foreign corporations, along with the oligarchs who own them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies provide no right of appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, or even businesses operating from this country. They are open only to entities based overseas.

If a tribunal finds that a legislative action may compromise the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These awards constitute not tangible damages but money the tribunal officials decide the company could potentially have made. The state might be compelled to abandon its policy. It becomes deterred from passing future laws of a similar nature, worried about being sued.

A System Running Rampant

Historically high figures of cases are being brought, as corporations learn from each other, and investment funds bankroll lawsuits in return for a share of the takings. The result? Sovereignty and popular rule are turning into too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the choices made by legislatures is that this clause has been inserted – absent public approval, and often in conditions of total confidentiality – within international trade agreements.

A Real-World Example: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The justice found that proposals to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine would have no impact on our carbon budgets. The new government subsequently revoked the permission the previous administration had granted. Today, this victory faces being overturned by an secret arbitration panel answering to no one but the corporations filing the suit.

In August, a company whose ultimate owners are located in the Cayman Islands lodged a claim against the UK government. Last week a arbitration panel in Washington DC was set up to hear it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had received permission to proceed. The public has little idea how much this might be. Which individual is acting on its behalf in opposition to the state? An elected representative, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was established, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it appears probable that he’ll use the ISDS mechanism to contest the restrictions the UK imposed on him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, seeking sixteen billion dollars: an amount representing half government’s yearly income. Included in the legal team on his side? Cherie Blair, married to the previous PM.

Legal experts believe that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its financial support package stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that these scenarios could not occur. Previously, a government leader, promoting the largest and riskiest of all these agreements, declared: “We’ve signed trade agreement upon trade deal and there has not been a problem in the past.” A consultant on this topic labelled campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Predictions that “once firms start to realise the authority bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were greeted by widespread derision.

That warning is now a reality. Recently, fossil fuel and mining firms have initiated a record number of cases against nations both wealthy and developing, challenging – like the example of the Whitehaven project – government attempts to halt climate breakdown. Corporations have thus far won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP