🔗 Share this article

How do you perceive our democratic process operates? It could be similar to this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills become law. Legislation is maintained by the courts. That's it. However, that was how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Nowadays, international firms, along with the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at secret arbitration panels composed of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these bodies allow no opportunity to appeal or judicial review. The general public are unable to file a case to them, nor can our government, including businesses headquartered in this country. The door is open exclusively to entities registered abroad.

Should an arbitration panel finds that a legislative action may compromise the corporation’s projected profits, it can award damages of hundreds of millions, potentially billions.

These awards are based not on real financial harm but money the panel members conclude the company could potentially have made. The administration may have to abandon its policy. It will be hesitant to introducing similar legislation along the same lines, for fear of facing litigation.

A System Running Rampant

Record numbers of legal actions are being brought, as firms learn from each other, and private equity bankroll lawsuits for a share of a cut of the awards. The result? Sovereignty and democratic governance are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the decisions enacted by legislatures is that this stipulation has been inserted – without public consent, and often in a climate of extreme secrecy – within trade treaties.

A Specific Case: The Whitehaven Coal Mine

A year ago, activists won a great victory at the senior court. The judge found that schemes to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no impact on national carbon targets. The incoming administration then withdrew the permission the previous administration had granted. Today, this victory faces being overturned by an offshore tribunal accountable to exclusively the corporations petitioning it.

During August, a corporate entity whose final controllers are based in the offshore financial centre lodged a claim challenging the UK government. Last week a tribunal in the United States was set up to consider the case.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to proceed. Citizens have little idea how much this could amount to. Which individual is representing it against the UK administration? A sitting MP, and former attorney-general in the outgoing administration, the noted patriot Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a foreign company challenges it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case so far, but it seems likely that he’ll use the ISDS mechanism to challenge the sanctions the UK levied against him after the Russian aggression. He has previously initiated proceedings against another European state with similar intent, seeking a colossal sum: an amount representing half nation's yearly income. Part of the lawyers acting for him in that case? Cherie Blair, married to the previous PM.

International law scholars contend that the EU’s procrastination in utilising seized state funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations may be obstructing the money Ukraine critically depends on.

False Assurances and Mounting Threats

We were assured that these events could not occur. In 2014, a former prime minister, championing the largest and riskiest of all these agreements, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this topic accused activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “as corporations grasp the power they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That threat has now materialised. Recently, fossil fuel and mining firms have filed a record number of cases against nations rich and poor, contesting – as in the case of the Cumbrian coalmine – state efforts to halt climate breakdown. Corporations have so far won $114bn through ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP