🔗 Share this article

How do you perceive our democratic process functions? It could be something like this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Legislation are enforced by the courts. Simple as that. However, that used to be how it used to work. Not anymore.

The Advent of Shadow Arbitration Panels

Today, overseas companies, and the billionaires who own them, can sue elected administrations for the policies they pass, at offshore tribunals staffed by commercial attorneys. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels allow no right of appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, or even companies headquartered in this country. The door is open only to corporations operating from foreign soil.

If a tribunal rules that a government measure might diminish the corporation’s expected profits, it can award damages of hundreds of millions of pounds, running into billions.

This compensation constitute not tangible damages but compensation the panel members determine the company could potentially have made. The administration might be compelled to drop the legislation. It becomes deterred from introducing similar legislation in that area, worried about facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of cases are being filed, as companies take cues from each other, and hedge funds bankroll lawsuits in exchange for a cut of the awards. The consequence? Democratic sovereignty and democracy are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the decisions made by elected bodies is that this provision has been written – absent public approval, and typically amid conditions of total confidentiality – inside trade treaties.

A Concrete Case: The Cumbrian Coal Mine

Last year, a conservation group achieved a major legal triumph at the High Court. The presiding officer found that proposals to open the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had accepted the questionable argument that the mine could have no consequence on climate commitments. The new government subsequently revoked the licence the former government had issued. Today, this victory is under threat by an offshore tribunal reporting to only the entities petitioning it.

In August, a firm whose final controllers are based in the offshore financial centre initiated proceedings versus the UK government. The previous week a dispute settlement body in the US capital was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been allowed to proceed. The public has no idea how much this might be. Who is serving as its counsel challenging the British government? A member of parliament, and ex-law officer in the Conservative government, the noted patriot the MP. The government makes a decision, the domestic court upholds it, then a international entity challenges it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Case

On the same day that the panel on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case to date, but it appears probable that he will utilise the arbitration process to fight the sanctions the UK enacted against him after the war in Ukraine. He has initiated proceedings against a small nation on these grounds, demanding sixteen billion dollars: equivalent to half of state's yearly income. Among the counsel acting for him in that case? Cherie Blair, spouse of the ex-UK leader.

Legal experts contend that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, undemocratic power over sovereign states could be blocking the money Ukraine desperately needs.

Misleading Claims and Mounting Risks

We were assured that these scenarios could not occur. Previously, a senior politician, advocating for the most significant and hazardous of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has never been a issue in the past.” An expert on this matter described campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “as corporations grasp the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were met with widespread derision.

That prediction is now a reality. Recently, energy and extraction companies have initiated a record number of claims against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to prevent environmental catastrophe. Firms have so far won $114bn by using ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP