🔗 Share this article

What is your understand our system of government works? Maybe something like this. We elect MPs. They vote on bills. If a majority is secured, the bills become law. The law is upheld by the courts. That's it. Yet, that used to be how it operated in the past. Not anymore.

The Emergence of Secret Tribunals

In the modern era, international firms, along with the wealthy individuals that control them, have the power to sue elected administrations for the regulations they pass, at offshore tribunals staffed by commercial attorneys. Such disputes are conducted in secret. Unlike our courts, these bodies allow no right of appeal or judicial review. The general public cannot take a case to them, and neither can our government, or even enterprises operating from this country. They are open exclusively to corporations operating from foreign soil.

Should an arbitration panel finds that a law or policy could harm the corporation’s projected profits, it has the power to grant compensation of vast sums, even billions.

This compensation represent not tangible damages but funds the arbitrators decide the company could potentially have made. The government may have to drop the legislation. It will be hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A System Growing Exponentially

Unprecedented levels of legal actions are being initiated, as corporations observe each other, and private equity fund legal actions in return for a share of the awards. The outcome? National sovereignty and democracy are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede a country's own laws and the choices taken by legislatures is that this clause has been inserted – without democratic mandate, and frequently under conditions of profound opacity – inside international trade agreements.

A Real-World Case: The Whitehaven Coalmine

Last year, a conservation group won a great victory at the high court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have had no impact on national carbon targets. The incoming administration later cancelled the consent the former government had approved. Today, this legal outcome is under threat by an secret arbitration panel reporting to no one but the entities petitioning it.

In August, a firm whose beneficial owners are located in the Cayman Islands initiated proceedings against the UK government. Last week a arbitration panel in the US capital was set up to adjudicate on it.

The company is suing the UK for the profits it would have generated if the mine had been allowed to go ahead. We have no clear indication how much this sum represents. Which individual is representing it in opposition to the British government? An elected representative, and former attorney-general in the Conservative government, that great patriot the MP. The state enacts a policy, the national judiciary supports it, then a overseas corporation disputes it through an undemocratic private court, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the panel on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case to date, but it appears probable that he’ll use the ISDS mechanism to contest the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has filed a claim against another European state on these grounds, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Included in the legal team on his side? Cherie Blair, married to the previous PM.

Trade specialists argue that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its financial support package stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over sovereign states could be blocking the finance Ukraine desperately needs.

Misleading Claims and Growing Risks

Politicians promised that these scenarios wouldn’t happen. Previously, a former prime minister, championing the largest and riskiest of all these agreements, declared: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” An expert on this topic described campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations should be concerned by such legal actions. Predictions that “when companies begin to understand the power they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were greeted by general mockery.

That threat has now materialised. This year, energy and mining firms have filed a unprecedented number of cases against nations both wealthy and developing, challenging – similar to the UK mine – official measures to stop climate breakdown. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP