🔗 Share this article

How do you reckon our democratic process operates? It could be along the lines of this. We elect MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. Simple as that. However, that was how it once functioned. Not anymore.

The Advent of Secret Arbitration Panels

Nowadays, international firms, along with the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. Such disputes take place in secret. In contrast to domestic courts, these bodies grant no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, including businesses based in this country. Access is granted solely for entities registered abroad.

Should an arbitration panel rules that a government measure may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

These awards represent not tangible damages but compensation the panel members determine the company would perhaps have made. The administration may have to abandon its policy. It is hesitant to passing future laws along the same lines, worried about facing litigation.

A System Running Rampant

Historically high figures of disputes are being brought, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the takings. The outcome? Sovereignty and democratic governance are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the rulings made by parliaments is that this stipulation has been written – without public consent, and often in a climate of total confidentiality – within trade treaties.

A Concrete Case: The Cumbrian Coal Mine

Last year, activists won a great victory at the senior court. The justice ruled that plans to excavate the first deep coalmine in the UK for three decades, in Cumbria, were wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine could have no consequence on climate commitments. The new government later cancelled the consent the previous administration had issued. Today, this victory faces being overturned by an foreign court answering to only the companies petitioning it.

In August, a firm whose final controllers are located in the offshore financial centre filed a lawsuit against the UK government. The previous week a dispute settlement body in the US capital was convened to adjudicate on it.

This firm is suing the UK for the money it would have generated if the mine had been allowed to commence operations. Citizens have no idea how much this sum represents. Who is acting on its behalf challenging the state? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the high court supports it, then a international entity challenges it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coalmine case was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he’ll use the ISDS mechanism to contest the penalties the UK imposed on him after the Russian aggression. He has previously filed a claim against a small nation for this reason, seeking a colossal sum: an amount representing half nation's yearly income. Among the legal team acting for him in that case? a prominent lawyer, married to the former British prime minister.

Legal experts contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its financial support package stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Costs

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An adviser on this matter labelled activists of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear these lawsuits. Cautionary notes that “once firms start to realise the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by scepticism.

That warning has now materialised. In the current period, energy and extraction companies have initiated a record number of cases against nations both wealthy and developing, opposing – similar to the Whitehaven project – official measures to stop environmental catastrophe. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP