🔗 Share this article

How do you perceive our system of government functions? Perhaps similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. The law is maintained by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Advent of Secret Arbitration Panels

Today, overseas companies, or the billionaires who own them, have the power to sue nation states for the policies they pass, at offshore tribunals staffed by business advocates. The cases are held behind closed doors. Unlike our courts, these tribunals provide no right of appeal or judicial review. You or I cannot take a case to them, just as our government, including companies headquartered in this country. Access is granted solely for corporations operating from foreign soil.

Should an arbitration panel determines that a law or policy might diminish the corporation’s projected profits, it may order financial penalties of hundreds of millions of pounds, even billions.

These awards constitute not tangible damages but compensation the arbitrators decide the company would perhaps have made. The state could be forced to abandon its policy. It will be hesitant to enacting future policies of a similar nature, for fear of facing litigation.

A System Running Rampant

Unprecedented levels of disputes are being brought, as companies take cues from each other, and hedge funds fund legal actions for a share of a portion of the awards. The outcome? Sovereignty and popular rule are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the rulings made by legislatures is that this clause has been incorporated – without public consent, and frequently under a climate of profound opacity – within trade treaties.

A Real-World Instance: The UK Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The justice found that schemes to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The Labour government later cancelled the licence the Tories had approved. Now, this success is under threat by an secret arbitration panel accountable to no one but the companies filing the suit.

In August, a firm whose final controllers reside in the offshore financial centre filed a lawsuit challenging the UK government. Recently a arbitration panel in the United States was set up to hear it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been permitted to proceed. The public has no clear indication how much this might be. Which individual is representing it challenging the state? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The government enacts a policy, the domestic court supports it, then a overseas corporation disputes it through an secretive private court, and a member of our parliament acts on its behalf.

A Sanctions Case

Simultaneously that the court on the coalmine case was convened, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case at present, but it seems likely that he may employ the arbitration process to fight the penalties the UK imposed on him subsequent to the Russian aggression. He has initiated proceedings against Luxembourg on these grounds, seeking $16bn: an amount representing half government’s yearly income. Among the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars believe that the EU’s procrastination in utilising seized Russian assets as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the money Ukraine desperately needs.

Misleading Claims and Growing Threats

Politicians promised that these events could not occur. In 2014, a senior politician, championing the largest and riskiest of all such treaties, told us: “The UK has signed investment treaty after trade deal and there has not been a issue in the past.” A consultant on this topic described campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “once firms begin to understand the authority they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were dismissed with general mockery.

That warning is now a reality. Recently, energy and extraction companies have lodged a record number of claims against nations rich and poor, challenging – similar to the Cumbrian coalmine – official measures to prevent climate breakdown. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained the majority. That equates to the combined GDP