🔗 Share this article

Can you reckon our system of government operates? Maybe something like this. We elect MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that’s how it operated in the past. Not anymore.

The Emergence of Offshore Arbitration Panels

Nowadays, international firms, along with the billionaires that control them, have the power to sue governments for the policies they pass, at private courts staffed by commercial attorneys. The cases are conducted behind closed doors. Unlike our courts, these tribunals allow no right of appeal or legal review. The general public cannot take a case to them, and neither can our government, or even businesses based in this country. The door is open exclusively to corporations operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s projected profits, it may order compensation of hundreds of millions of pounds, running into billions.

These awards constitute not tangible damages but funds the tribunal officials conclude the company could potentially have made. The state could be forced to rescind the measure. It is hesitant to introducing similar legislation along the same lines, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being brought, as companies take cues from each other, and hedge funds fund legal actions in return for a cut of the takings. The result? National sovereignty and popular rule are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the rulings enacted by legislatures is that this clause has been incorporated – absent public approval, and frequently under conditions of extreme secrecy – into bilateral investment treaties.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The judge ruled that schemes to dig the first major coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had no consequence on national carbon targets. The new government subsequently revoked the permission the former government had approved. Now, this victory could be compromised by an foreign court accountable to no one but the companies petitioning it.

During August, a firm whose final controllers reside in the Cayman Islands filed a lawsuit versus the UK government. Recently a arbitration panel in Washington DC was convened to adjudicate on it.

The company is suing the UK for the profits it might have made if the mine had been allowed to go ahead. Citizens have little idea how much this sum represents. Who is representing it in opposition to the British government? A sitting MP, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a overseas corporation disputes it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the panel on the coal mine dispute was convened, we learned 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 to date, but it seems likely that he may employ the arbitration process to contest the sanctions the UK imposed on him following the war in Ukraine. He has already filed a claim against another European state for this reason, demanding $16bn: half that state's annual revenue. Among the legal team representing him there? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

Misleading Claims and Escalating Costs

The public was told that such things were not possible. Previously, a government leader, advocating for the biggest and most dangerous of all these agreements, declared: “We’ve signed investment treaty upon trade deal and there has never been a issue in the past.” An expert on this issue accused critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations had to worry about these lawsuits. Predictions that “as corporations start to realise the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat has now materialised. This year, energy and resource corporations have initiated a record number of cases against nations rich and poor, contesting – like the example of the UK mine – official measures to halt climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP