🔗 Share this article

Can you understand our democratic process functions? It could be similar to this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills pass into law. The law is upheld by the courts. End of story. Well, that used to be how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

Today, international firms, along with the oligarchs who own them, can sue nation states for the policies they pass, at private courts composed of corporate lawyers. Such disputes take place in secret. Differing from national judiciaries, these bodies grant no right of appeal or judicial review. You or I cannot take a case to them, and neither can our government, including businesses operating from this country. The door is open only to corporations based overseas.

Should an arbitration panel finds that a law or policy could harm the corporation’s projected profits, it has the power to grant compensation of vast sums, even billions.

These sums constitute not actual losses but funds the panel members decide the company might otherwise have made. The government may have to abandon its policy. It becomes discouraged from passing future laws of a similar nature, due to the risk of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being brought, as firms observe each other, and investment funds bankroll lawsuits in exchange for a share of the settlements. The result? National sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the decisions taken by legislatures is that this clause has been inserted – without democratic mandate, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Specific Instance: The Cumbrian Coalmine

A year ago, a conservation group won a great victory at the High Court. The justice ruled that schemes to dig the first major coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine would have zero effect on climate commitments. The incoming administration then withdrew the consent the previous administration had approved. Now, this legal outcome is under threat by an offshore tribunal answering to no one but the companies bringing the case.

During August, a corporate entity whose beneficial owners are located in the offshore financial centre filed a lawsuit against the UK government. Recently a dispute settlement body in Washington DC was set up to consider the case.

The company is suing the UK for the money it would have generated if the mine had been permitted to commence operations. We have no idea how much this could amount to. Who is representing it against the British government? A sitting MP, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The administration passes a law, the high court supports it, then a foreign company disputes it through an secretive offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Challenge

On the same day that the court on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case so far, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK enacted against him following the war in Ukraine. He has previously initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: equivalent to half of state's yearly budget. Included in the legal team representing him there? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists believe that the EU’s delay in using frozen Russian assets as collateral for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over democratic administrations could be blocking the finance Ukraine urgently requires.

False Assurances and Mounting Risks

Politicians promised that these events wouldn’t happen. Previously, a senior politician, advocating for the most significant and hazardous of all investment pacts, told us: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An adviser on this topic labelled activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations needed to fear these lawsuits. Predictions that “as corporations grasp the influence they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were met with widespread derision.

That threat has now materialised. Recently, fossil fuel and resource corporations have lodged a historic level of cases against nations across the economic spectrum, contesting – like the example of the UK mine – state efforts to prevent global warming. Corporations have to date won $114bn by using ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP