Can you perceive our system of government operates? It could be similar to this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. End of story. Yet, that used to be how it operated in the past. No longer.
The Advent of Shadow Tribunals
In the modern era, overseas companies, or the wealthy individuals who own them, can sue governments for the laws they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these tribunals provide no right of appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even businesses based in this country. They are open solely for businesses based overseas.
If a tribunal rules that a law or policy could harm the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, potentially billions.
This compensation constitute not actual losses but funds the arbitrators decide the company could potentially have made. The state may have to rescind the measure. It is hesitant to passing future laws in that area, for fear of being sued.
A Mechanism Spiralling Out of Control
Unprecedented levels of cases are being filed, as corporations take cues from each other, and investment funds fund legal actions for a share of a portion of the awards. The outcome? Democratic sovereignty and popular rule are turning into prohibitively expensive.
The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the decisions enacted by parliaments is that this clause has been incorporated – absent public approval, and often in conditions of total confidentiality – into trade treaties.
A Real-World Case: The UK Coal Mine
Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The presiding officer found that plans to open the first new deep coal mine in the UK for a generation, in northwest England, were found to be wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine could have zero effect on national carbon targets. The Labour government subsequently revoked the licence the previous administration had issued. Today, this success is under threat by an secret arbitration panel answering to exclusively the corporations filing the suit.
During August, a firm whose final controllers are located in the Cayman Islands initiated proceedings versus the UK government. The previous week a tribunal in the US capital was convened to adjudicate on it.
This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to commence operations. Citizens have no clear indication how much this could amount to. What legal team is acting on its behalf in opposition to the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a international entity contests it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.
An Oligarch's Lawsuit
Simultaneously that the panel on the coal mine dispute was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK levied against him after the war in Ukraine. He has previously filed a claim against a small nation for this reason, demanding $16bn: equivalent to half of state's annual revenue. Among the legal team on his side? a prominent lawyer, spouse of the ex-UK leader.
Legal experts contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments might be preventing the money Ukraine critically depends on.
Empty Promises and Escalating Risks
The public was told that such things were not possible. Years ago, a government leader, advocating for the largest and riskiest of all investment pacts, stated: “The UK has signed trade agreement after trade deal and there has not been a case in the past.” An adviser on this matter labelled campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms begin to understand the authority they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.
That prediction has come to pass. Recently, oil and gas and resource corporations have filed a historic level of claims against nations across the economic spectrum, contesting – like the example of the Whitehaven project – government attempts to stop environmental catastrophe. Companies have so far won vast sums via ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP
