🔗 Share this article

Can you reckon our system of government functions? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills become law. Legislation is maintained by the courts. Simple as that. However, that was how it used to work. Not anymore.

The Rise of Secret Arbitration Panels

Nowadays, foreign corporations, and the oligarchs who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. These proceedings take place away from public scrutiny. Differing from national judiciaries, these bodies allow no opportunity to appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even businesses operating from this country. Access is granted exclusively to businesses based overseas.

If a tribunal rules that a law or policy could harm the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

These sums constitute not tangible damages but compensation the arbitrators decide the company might otherwise have made. The government may have to drop the legislation. It becomes deterred from passing future laws of a similar nature, worried about facing litigation.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as firms take cues from each other, and private equity finance suits in exchange for a cut of the takings. The outcome? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override domestic law and the decisions made by legislatures is that this stipulation has been inserted – without democratic mandate, and frequently under a climate of profound opacity – inside bilateral investment treaties.

A Specific Case: The Cumbrian Coal Mine

Last year, a conservation group secured a significant win at the senior court. The presiding officer ruled that proposals to open the first deep coalmine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no impact on climate commitments. The new government later cancelled the consent the previous administration had approved. Now, this success could be compromised by an secret arbitration panel accountable to no one but the companies petitioning it.

During August, a company whose beneficial owners are located in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a tribunal in Washington DC was set up to adjudicate on it.

This firm is suing the UK for the revenue it might have made if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. Who is acting on its behalf against the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The government enacts a policy, the high court supports it, then a foreign company challenges it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

Simultaneously that the panel on the coalmine case was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he may employ the arbitration process to challenge the sanctions the UK levied against him after the war in Ukraine. He has already initiated proceedings against another European state on these grounds, claiming a colossal sum: half that nation's yearly income. Part of the legal team representing him there? a prominent lawyer, married to the former British prime minister.

Trade specialists believe that the EU’s procrastination in using frozen oligarchs' funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over elected governments could be blocking the funds Ukraine desperately needs.

Empty Promises and Growing Threats

Politicians promised that these events were not possible. Previously, a former prime minister, championing the largest and riskiest of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An expert on this issue labelled critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations needed to fear these lawsuits. Warnings that “as corporations begin to understand the authority they now possess, they will turn their attention from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has now materialised. This year, oil and gas and extraction companies have lodged a historic level of claims against nations rich and poor, contesting – like the example of the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have thus far won $114bn via ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP