🔗 Share this article

How do you perceive our system of government operates? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. That's it. However, that’s how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

Today, foreign corporations, along with the oligarchs behind them, are able to litigate against governments for the policies they pass, at offshore tribunals made up of business advocates. These proceedings are held in secret. Unlike our courts, these tribunals provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even enterprises based in this country. They are open only to corporations operating from foreign soil.

When a secret court determines that a legislative action might diminish the corporation’s projected profits, it may order compensation of vast sums, potentially billions.

These awards represent not real financial harm but compensation the tribunal officials decide the company might otherwise have made. The government may have to rescind the measure. It is deterred from introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of cases are being filed, as firms observe each other, and investment funds bankroll lawsuits in exchange for a share of the takings. The outcome? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the rulings taken by elected bodies is that this provision has been inserted – without democratic mandate, and often in an atmosphere of total confidentiality – inside bilateral investment treaties.

A Real-World Instance: The Cumbrian Coalmine

Twelve months ago, environmental campaigners secured a significant win at the high court. The justice determined that schemes to dig the first major coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have no impact on climate commitments. The Labour government subsequently revoked the permission the former government had approved. Now, this legal outcome faces being overturned by an foreign court reporting to exclusively the corporations petitioning it.

In August, a company whose ultimate owners are located in the tax haven initiated proceedings challenging the UK government. Recently a dispute settlement body in the United States was established to adjudicate on it.

The company is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. The public has little idea how much this might be. What legal team is acting on its behalf against the British government? An elected representative, and former attorney-general in the Conservative government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a foreign company challenges it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

The Russian Case

On the same day that the court on the mining lawsuit was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case so far, but it appears probable that he may employ the tribunal to contest the restrictions the UK imposed on him after the Russian aggression. He has already filed a claim against Luxembourg on these grounds, claiming $16bn: half that government’s yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations could be blocking the funds Ukraine urgently requires.

Empty Promises and Escalating Threats

The public was told that such things wouldn’t happen. Years ago, a senior politician, championing the largest and riskiest of all these agreements, told us: “The UK has signed investment treaty after trade deal and there has not been a case in the past.” An adviser on this matter labelled campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “once firms start to realise the authority bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were greeted by general mockery.

That threat has now materialised. This year, oil and gas and resource corporations have initiated a unprecedented number of cases against nations across the economic spectrum, opposing – similar to the UK mine – government attempts to stop environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP