🔗 Share this article

How do you reckon our system of government works? Maybe similar to this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills become law. Legislation is maintained by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Advent of Shadow Arbitration Panels

Nowadays, foreign corporations, or the wealthy individuals behind them, have the power to sue nation states for the regulations they pass, at offshore tribunals made up of corporate lawyers. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these bodies provide no avenue for appeal or legal review. You or I cannot take a case to them, and neither can our government, or even companies based in this country. They are open solely for entities registered abroad.

When a secret court determines that a law or policy could harm the corporation’s expected profits, it can award compensation of vast sums, running into billions.

These sums are based not on tangible damages but money the tribunal officials decide the company might otherwise have made. The state may have to abandon its policy. It is hesitant to passing future laws of a similar nature, worried about being sued.

A System Running Rampant

Record numbers of disputes are being brought, as firms learn from each other, and hedge funds fund legal actions in return for a cut of the settlements. The consequence? Sovereignty and popular rule are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the rulings taken by parliaments is that this provision has been written – absent public approval, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Concrete Case: The Cumbrian Coal Mine

A year ago, a conservation group won a great victory at the senior court. The judge determined that proposals to dig the first major coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have had no impact on our carbon budgets. The new government later cancelled the permission the Tories had granted. Today, this success faces being overturned by an secret arbitration panel answering to no one but the companies bringing the case.

During August, a corporate entity whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. The previous week a tribunal in the US capital was established to hear it.

This firm is litigating against the UK for the profits it could have earned if the mine had received permission to go ahead. Citizens have no idea how much this might be. What legal team is representing it in opposition to the UK administration? A member of parliament, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court validates it, then a overseas corporation challenges it through an secretive arbitration panel, and a elected official represents its behalf.

The Russian Lawsuit

Simultaneously that the panel on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know little of the case to date, but it is highly possible that he may employ the tribunal to contest the penalties the UK imposed on him after the Russian aggression. He has previously filed a claim against another European state on these grounds, seeking a colossal sum: half that nation's yearly income. Among the counsel representing him there? Cherie Blair, spouse of the former British prime minister.

Trade specialists believe that the EU’s delay in using frozen oligarchs' funds as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, unaccountable authority over sovereign states might be preventing the funds Ukraine urgently requires.

Empty Promises and Mounting Risks

The public was told that these events could not occur. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and there has never been a issue in the past.” A consultant on this issue described campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Warnings that “when companies start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were met with general mockery.

That prediction has come to pass. Recently, energy and mining firms have initiated a historic level of claims against nations rich and poor, opposing – like the example of the Whitehaven project – official measures to halt environmental catastrophe. Corporations have thus far won $114bn through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP