🔗 Share this article

Can you understand our political system operates? It could be along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. The law are enforced by the courts. Simple as that. Yet, that was how it used to work. Not anymore.

The Rise of Shadow Arbitration Panels

Today, foreign corporations, along with the billionaires behind them, are able to litigate against governments for the regulations they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are held behind closed doors. Differing from national judiciaries, these bodies grant no avenue for appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. The door is open only to corporations operating from foreign soil.

If a tribunal rules that a government measure might diminish the corporation’s expected profits, it may order compensation of hundreds of millions, running into billions.

This compensation are based not on actual losses but funds the tribunal officials decide the company would perhaps have made. The state might be compelled to abandon its policy. It becomes discouraged from introducing similar legislation of a similar nature, worried about being sued.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as firms learn from each other, and investment funds finance suits in exchange for a share of the awards. The result? National sovereignty and democracy are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the choices made by legislatures is that this provision has been inserted – without public consent, and typically amid a climate of extreme secrecy – inside bilateral investment treaties.

A Real-World Case: The Cumbrian Coalmine

A year ago, environmental campaigners won a great victory at the High Court. The presiding officer ruled that schemes to dig the first deep coalmine 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 could have no consequence on our carbon budgets. The incoming administration later cancelled the permission the previous administration had approved. Currently, this legal outcome faces being overturned by an foreign court answering to only the companies bringing the case.

During August, a company whose final controllers are based in the offshore financial centre initiated proceedings versus the UK government. Last week a arbitration panel in the United States was set up to adjudicate on it.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to proceed. Citizens have little idea how much this sum represents. Who is serving as its counsel challenging the British government? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot the MP. The state enacts a policy, the domestic court upholds it, then a international entity disputes it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case so far, but it appears probable that he will utilise the ISDS mechanism to contest the restrictions the UK imposed on him after the war in Ukraine. He has started suing a small nation with similar intent, seeking sixteen billion dollars: equivalent to half of government’s yearly budget. Among the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists contend that the EU’s procrastination in using frozen oligarchs' funds as collateral for its financial support package stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over elected governments may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Mounting Threats

Politicians promised that these scenarios were not possible. Years ago, a government leader, championing the largest and riskiest of all such treaties, told us: “The UK has signed trade agreement after trade deal and there has never been a issue in the past.” An expert on this matter accused critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “once firms start to realise the influence bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were greeted by widespread derision.

That threat has come to pass. In the current period, oil and gas and extraction companies have filed a record number of suits against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – official measures to prevent climate breakdown. Firms have so far won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP