🔗 Share this article

How do you understand our system of government works? Perhaps something like this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. End of story. Yet, that was how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

Nowadays, overseas companies, along with the billionaires who own them, have the power to sue elected administrations for the regulations they pass, at private courts made up of business advocates. Such disputes take place in secret. Unlike our courts, these panels provide no right of appeal or legal review. The general public are barred from bringing a case to them, and neither can our government, or even businesses based in this country. Access is granted exclusively to entities based overseas.

When a secret court rules that a legislative action might diminish the corporation’s projected profits, it may order damages of hundreds of millions, even billions.

This compensation are based not on tangible damages but money the tribunal officials determine the company might otherwise have made. The state could be forced to rescind the measure. It is hesitant to introducing similar legislation along the same lines, worried about facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as companies learn from each other, and investment funds fund legal actions in exchange for a cut of the awards. The result? Democratic sovereignty and popular rule are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the decisions enacted by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of total confidentiality – within trade treaties.

A Specific Case: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the high court. The justice found that schemes to excavate the first major coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine would have zero effect on climate commitments. The new government then withdrew the consent the former government had issued. Today, this success is under threat by an offshore tribunal accountable to only the entities bringing the case.

Last August, a corporate entity whose ultimate owners reside in the Cayman Islands initiated proceedings versus the UK government. Recently a tribunal in the US capital was established to hear it.

This firm is litigating against the UK for the revenue it might have made if the mine had been permitted to proceed. Citizens have no clear indication how much this might be. Which individual is serving as its counsel challenging the state? An elected representative, and former attorney-general in the outgoing administration, the noted patriot the MP. The government passes a law, the high court supports it, then a international entity challenges it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

On the same day that the court on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case so far, but it is highly possible that he may employ the arbitration process to challenge the restrictions the UK levied against him after the invasion of Ukraine. He has previously started suing another European state with similar intent, demanding $16bn: an amount representing half state's yearly income. Included in the counsel acting for him in that case? Cherie Blair, spouse of the previous PM.

Trade specialists contend that the EU’s procrastination in utilising seized state funds as collateral for its financial support package is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the finance Ukraine desperately needs.

Misleading Claims and Growing Threats

The public was told that such things were not possible. Years ago, a former prime minister, championing the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade agreement upon trade deal and we have never seen a problem in the past.” An expert on this topic described critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Warnings that “as corporations start to realise the authority they now possess, they will shift their focus from the poorer states to the wealthy nations” were dismissed with widespread derision.

That warning has come to pass. Recently, energy and extraction companies have initiated a record number of claims against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – state efforts to halt environmental catastrophe. Firms have so far won vast sums via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP