🔗 Share this article

Can you reckon our political system operates? Perhaps something like this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. However, that used to be how it operated in the past. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, and the billionaires that control them, have the power to sue governments for the laws they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are held in secret. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. They are open solely for businesses based overseas.

When a secret court rules that a law or policy could harm the corporation’s anticipated profits, it has the power to grant damages of vast sums, running into billions.

This compensation represent not real financial harm but money the tribunal officials decide the company might otherwise have made. The state may have to abandon its policy. It becomes discouraged from passing future laws along the same lines, for fear of being sued.

A Process Spiralling Out of Control

Historically high figures of legal actions are being filed, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The outcome? Sovereignty and democratic governance are becoming prohibitively expensive.

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

A Concrete Example: The Whitehaven Coalmine

Twelve months ago, environmental campaigners won a great victory at the high court. The justice found that schemes to open the first deep coalmine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had no impact on climate commitments. The incoming administration then withdrew the permission the previous administration had approved. Today, this success could be compromised by an foreign court answering to exclusively the corporations petitioning it.

Last August, a company whose final controllers are located in the offshore financial centre initiated proceedings challenging the UK government. Last week a tribunal in Washington DC was convened to consider the case.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been permitted to proceed. We have no idea how much this could amount to. Which individual is representing it against the British government? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot the MP. The state enacts a policy, the high court upholds it, then a overseas corporation disputes it through an secretive offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the mining lawsuit was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case at present, but it appears probable that he may employ the ISDS mechanism to challenge the sanctions the UK levied against him following the Russian aggression. He has previously started suing a small nation for this reason, demanding a colossal sum: half that nation's yearly budget. Part of the legal team on his side? the wife of a former prime minister, married to the previous PM.

International law scholars believe that the EU’s delay in utilising seized oligarchs' funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations could be blocking the finance Ukraine desperately needs.

Misleading Claims and Mounting Risks

We were assured that these scenarios were not possible. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, stated: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” An expert on this topic accused activists of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “as corporations begin to understand the authority they now possess, they will turn their attention from the vulnerable countries to the developed economies” were met with general mockery.

That prediction has come to pass. This year, oil and gas and mining firms have initiated a unprecedented number of suits against nations rich and poor, challenging – similar to the Whitehaven project – government attempts to stop climate breakdown. Companies have thus far won vast sums through ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP