🔗 Share this article

How do you perceive our democratic process works? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills become law. The law is upheld by the courts. Simple as that. Well, that was how it used to work. Not anymore.

The Emergence of Offshore Arbitration Panels

Nowadays, overseas companies, or the billionaires who own them, can sue governments for the laws they pass, at secret arbitration panels composed of corporate lawyers. The cases take place behind closed doors. Unlike our courts, these panels provide no right of appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, or even companies headquartered in this country. The door is open only to entities based overseas.

Should an arbitration panel determines that a law or policy could harm the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, running into billions.

These awards represent not actual losses but compensation the tribunal officials determine the company might otherwise have made. The state could be forced to drop the legislation. It is discouraged from enacting future policies in that area, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of cases are being filed, as firms observe each other, and hedge funds bankroll lawsuits in return for a share of the settlements. The consequence? Democratic sovereignty and democratic governance are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the rulings made by parliaments is that this clause has been inserted – without democratic mandate, and often in an atmosphere of total confidentiality – inside trade treaties.

A Real-World Example: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The justice determined that schemes to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine would have no impact on national carbon targets. The Labour government later cancelled the licence the Tories had issued. Today, this legal outcome could be compromised by an foreign court reporting to only the corporations filing the suit.

Last August, a corporate entity whose beneficial owners reside in the offshore financial centre filed a lawsuit versus the UK government. Last week a dispute settlement body in the US capital was set up to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to commence operations. Citizens have little idea how much this could amount to. Who is serving as its counsel against the UK administration? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state makes a decision, the national judiciary supports it, then a foreign company challenges it through an unaccountable private court, and a elected official acts on its behalf.

A Sanctions Case

Concurrently that the tribunal on the mining lawsuit was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case so far, but it is highly possible that he will utilise the arbitration process to fight the penalties the UK imposed on him after the invasion of Ukraine. He has already started suing a small nation for this reason, seeking $16bn: half that nation's yearly budget. Among the legal team on his side? a prominent lawyer, wife of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over democratic administrations may be obstructing the finance Ukraine desperately needs.

False Assurances and Mounting Threats

Politicians promised that such things were not possible. Years ago, a government leader, championing the biggest and most dangerous of all investment pacts, declared: “The UK has signed trade deal upon trade deal and we have never seen a problem in the past.” An expert on this topic accused critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear such legal actions. Warnings that “as corporations begin to understand the influence they now possess, they will turn their attention from the weak nations to the developed economies” were greeted by general mockery.

That prediction is now a reality. Recently, fossil fuel and extraction companies have lodged a unprecedented number of cases against nations across the economic spectrum, contesting – like the example of the Whitehaven project – government attempts to stop global warming. Firms have to date won vast sums via ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP