🔗 Share this article

What is your reckon our democratic process functions? Maybe similar to this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. The law is upheld by the courts. Simple as that. Well, that was how it operated in the past. Those days are over.

The Emergence of Shadow Arbitration Panels

In the modern era, foreign corporations, and the billionaires who own them, have the power to sue elected administrations for the policies they pass, at offshore tribunals made up of commercial attorneys. Such disputes are held away from public scrutiny. In contrast to domestic courts, these tribunals provide no avenue for appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even businesses based in this country. Access is granted only to entities registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s projected profits, it can award damages of vast sums, even billions.

These sums are based not on real financial harm but money the panel members decide the company would perhaps have made. The administration could be forced to rescind the measure. It will be deterred from passing future laws in that area, for fear of being sued.

A Process Growing Exponentially

Record numbers of legal actions are being initiated, as firms learn from each other, and investment funds bankroll lawsuits in exchange for a cut of the takings. The result? Democratic sovereignty and democracy are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the choices made by legislatures is that this provision has been inserted – without public consent, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Specific Instance: The Whitehaven Coalmine

Last year, activists secured a significant win at the High Court. The justice determined that proposals to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine could have no consequence on our carbon budgets. The Labour government subsequently revoked the permission the previous administration had issued. Currently, this victory is under threat by an secret arbitration panel accountable to only the entities petitioning it.

In August, a corporate entity whose ultimate owners are based in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was established to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had received permission to proceed. We have little idea how much this could amount to. Which individual is acting on its behalf in opposition to the UK administration? A member of parliament, and former attorney-general in the outgoing administration, that great patriot the MP. The government passes a law, the national judiciary validates it, then a foreign company contests it through an undemocratic private court, and a member of our parliament works for its behalf.

A Sanctions Case

Concurrently that the court on the mining lawsuit was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case so far, but it is highly possible that he may employ the tribunal to contest the penalties the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against Luxembourg for this reason, seeking sixteen billion dollars: half that state's yearly income. Included in the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars believe that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments may be obstructing the money Ukraine critically depends on.

Misleading Claims and Escalating Risks

We were assured that these scenarios were not possible. In 2014, a senior politician, promoting the most significant and hazardous of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” An adviser on this topic labelled activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “as corporations begin to understand the influence bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were met with general mockery.

That threat has now materialised. Recently, fossil fuel and resource corporations have filed a historic level of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – state efforts to halt climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That represents the combined GDP