🔗 Share this article

How do you understand our democratic process operates? Perhaps something like this. We elect MPs. They legislate on bills. If a majority is achieved, the bills become law. The law is maintained by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Nowadays, overseas companies, along with the billionaires behind them, have the power to sue governments for the regulations they pass, at offshore tribunals made up of corporate lawyers. Such disputes take place behind closed doors. Differing from national judiciaries, these bodies allow no opportunity to appeal or legal review. You or I are unable to file a case to them, nor can our government, or even businesses based in this country. Access is granted solely for corporations operating from foreign soil.

If a tribunal finds that a government measure may compromise the corporation’s projected profits, it may order damages of vast sums, even billions.

These awards represent not real financial harm but compensation the panel members determine the company might otherwise have made. The state could be forced to abandon its policy. It will be hesitant to introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Unprecedented levels of disputes are being brought, as corporations observe each other, and private equity bankroll lawsuits for a share of a cut of the takings. The outcome? Sovereignty and democracy are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the choices taken by legislatures is that this stipulation has been inserted – without democratic mandate, and often in conditions of profound opacity – into trade treaties.

A Specific Example: The UK Coalmine

Last year, activists secured a significant win at the high court. The judge determined that plans to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have zero effect on national carbon targets. The new government subsequently revoked the licence the former government had approved. Today, this legal outcome is under threat by an secret arbitration panel accountable to no one but the corporations filing the suit.

Last August, a corporate entity whose final controllers are based in the offshore financial centre initiated proceedings versus the UK government. The previous week a dispute settlement body in the United States was established to adjudicate on it.

The claimant is litigating against the UK for the money it might have made if the mine had been permitted to proceed. Citizens have no clear indication how much this might be. Who is representing it in opposition to the British government? A sitting MP, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a international entity challenges it through an unaccountable private court, and a member of our parliament acts on its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coal mine dispute was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case to date, but it appears probable that he will utilise the arbitration process to challenge the sanctions the UK enacted against him after the war in Ukraine. He has filed a claim against a small nation for this reason, demanding a colossal sum: equivalent to half of nation's yearly budget. Among the lawyers on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars argue that the EU’s procrastination in utilising seized oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations might be preventing the finance Ukraine desperately needs.

Misleading Claims and Growing Threats

The public was told that these scenarios could not occur. In 2014, a government leader, advocating for the largest and riskiest of all these agreements, declared: “We’ve signed trade deal after trade deal and there has never been a problem in the past.” An adviser on this matter labelled campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “once firms grasp the influence they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with widespread derision.

That prediction has come to pass. This year, energy and resource corporations have lodged a historic level of claims against nations across the economic spectrum, contesting – like the example of the Whitehaven project – official measures to stop environmental catastrophe. Companies have thus far won $114bn through ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP