🔗 Share this article

Can 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. The law are enforced by the courts. Simple as that. However, that was how it used to work. No longer.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals who own them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are conducted behind closed doors. Differing from national judiciaries, these bodies grant no opportunity to appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, or even companies based in this country. They are open only to businesses registered abroad.

When a secret court finds that a law or policy may compromise the corporation’s anticipated profits, it can award compensation of vast sums, potentially billions.

These sums are based not on real financial harm but compensation the panel members determine the company would perhaps have made. The government might be compelled to rescind the measure. It is discouraged from passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Record numbers of cases are being brought, as companies take cues from each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the rulings made by legislatures is that this stipulation has been incorporated – absent public approval, and typically amid a climate of profound opacity – inside trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Last year, environmental campaigners secured a significant win at the High Court. The justice determined that schemes to excavate the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have zero effect on national carbon targets. The incoming administration later cancelled the permission the previous administration had granted. Today, this victory could be compromised by an foreign court reporting to no one but the entities bringing the case.

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

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to commence operations. We have no idea how much this might be. Which individual is serving as its counsel in opposition to the UK administration? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the national judiciary upholds it, then a overseas corporation challenges it through an secretive arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Case

On the same day that the court on the coalmine case was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he will utilise the ISDS mechanism to fight the restrictions the UK levied against him after the war in Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, seeking a colossal sum: an amount representing half state's annual revenue. Included in the legal team acting for him in that case? a prominent lawyer, spouse of the previous PM.

International law scholars argue that the EU’s procrastination in utilising seized oligarchs' funds as collateral 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 remarkable, undemocratic power over elected governments could be blocking the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

We were assured that these events could not occur. Previously, a senior politician, advocating for the largest and riskiest of all these agreements, told us: “Britain has agreed to trade deal after trade deal and we have never seen a case in the past.” An adviser on this topic labelled critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “once firms grasp the influence they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That warning has come to pass. Recently, fossil fuel and extraction companies have lodged a historic level of cases against nations rich and poor, opposing – like the example of the Whitehaven project – government attempts to halt global warming. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP