🔗 Share this article

How do you understand our democratic process works? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. However, that’s how it once functioned. Those days are over.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. The cases take place behind closed doors. Differing from national judiciaries, these panels provide no right of appeal or judicial review. You or I cannot take a case to them, nor can our government, including companies based in this country. They are open solely for businesses based overseas.

Should an arbitration panel finds that a legislative action could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

These sums constitute not actual losses but money the arbitrators determine the company would perhaps have made. The government could be forced to rescind the measure. It is hesitant to passing future laws along the same lines, due to the risk of being sued.

A System Running Rampant

Unprecedented levels of legal actions are being brought, as companies take cues from each other, and private equity finance suits for a share of a portion of the takings. The result? Democratic sovereignty and democracy are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the decisions taken by legislatures is that this provision has been incorporated – without public consent, and often in an atmosphere of profound opacity – within bilateral investment treaties.

A Concrete Instance: The UK Coalmine

Twelve months ago, activists secured a significant win at the senior court. The justice found that schemes to dig the first deep coalmine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had no consequence on national carbon targets. The Labour government subsequently revoked the consent the Tories had granted. Currently, this success could be compromised by an secret arbitration panel accountable to no one but the corporations petitioning it.

Last August, a firm whose final controllers reside in the Cayman Islands lodged a claim versus the UK government. Recently a tribunal in the United States was convened to consider the case.

The company is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have no idea how much this could amount to. What legal team is serving as its counsel in opposition to the state? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The government makes a decision, the national judiciary validates it, then a overseas corporation challenges it through an secretive arbitration panel, and a elected official acts on its behalf.

The Russian Challenge

On the same day that the tribunal on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case at present, but it appears probable that he may employ the ISDS mechanism to fight the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has initiated proceedings against a small nation on these grounds, demanding $16bn: an amount representing half state's yearly income. Part of the counsel acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars believe that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Mounting Costs

We were assured that these events could not occur. In 2014, a government leader, advocating for the largest and riskiest of all such treaties, told us: “The UK has signed trade agreement after trade deal and there has not been a problem in the past.” An expert on this matter described campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries should be concerned by such legal actions. Predictions that “when companies begin to understand the influence they now possess, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That warning is now a reality. In the current period, energy and extraction companies have lodged a unprecedented number of suits against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – official measures to prevent global warming. Firms have to date won $114bn through ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP