🔗 Share this article

What is your understand our democratic process functions? It could be along the lines of this. We elect MPs. They vote on bills. If a majority is secured, the bills are enacted as law. The law is upheld by the courts. End of story. Yet, that’s how it operated in the past. Not anymore.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, or the oligarchs behind them, have the power to sue elected administrations for the policies they pass, at offshore tribunals staffed by corporate lawyers. Such disputes take place behind closed doors. In contrast to domestic courts, these panels provide no avenue for appeal or legal review. You or I cannot take a case to them, just as our government, or even businesses operating from this country. The door is open exclusively to businesses operating from foreign soil.

When a secret court determines that a law or policy may compromise the corporation’s anticipated profits, it may order damages of vast sums, potentially billions.

These sums represent not real financial harm but funds the arbitrators conclude the company would perhaps have made. The government might be compelled to rescind the measure. It will be deterred from introducing similar legislation of a similar nature, worried about being sued.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as corporations learn from each other, and private equity finance suits in return for a cut of the takings. The outcome? Sovereignty and democratic governance are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the choices taken by legislatures is that this clause has been inserted – absent public approval, and typically amid a climate of extreme secrecy – inside trade treaties.

A Specific Case: The UK Coal Mine

A year ago, a conservation group secured a significant win at the high court. The judge ruled that proposals to open the first deep coalmine in the UK for a generation, in northwest England, were illegally sanctioned by the outgoing administration, which had agreed to the bizarre claim that the mine could have no consequence on our carbon budgets. The incoming administration then withdrew the permission the former government had approved. Today, this victory faces being overturned by an foreign court reporting to exclusively the companies bringing the case.

Last August, a firm whose ultimate owners reside in the offshore financial centre initiated proceedings versus the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

This firm is suing the UK for the money it might have made if the mine had been permitted to proceed. The public has no idea how much this might be. What legal team is serving as its counsel challenging the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a international entity contests it through an undemocratic arbitration panel, and a elected official represents its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coalmine case was convened, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case to date, but it appears probable that he’ll use the ISDS mechanism to challenge the penalties the UK enacted against him after the war in Ukraine. He has initiated proceedings against another European state on these grounds, claiming sixteen billion dollars: equivalent to half of government’s yearly income. Included in the counsel on his side? Cherie Blair, wife of the previous PM.

Trade specialists believe that the EU’s delay in leveraging immobilised Russian assets as guarantee for its loan to Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine critically depends on.

Empty Promises and Growing Threats

Politicians promised that these scenarios could not occur. Previously, a senior politician, championing the biggest and most dangerous of all such treaties, told us: “We’ve signed investment treaty upon trade deal and there has never been a issue in the past.” A consultant on this matter labelled critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Warnings that “when companies begin to understand the power they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning has now materialised. In the current period, energy and extraction companies have filed a record number of claims against nations across the economic spectrum, challenging – similar to the Whitehaven project – state efforts to prevent environmental catastrophe. Firms have so far won vast sums by using ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP