🔗 Share this article

How do you perceive our democratic process functions? It could be along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Statutes are enforced by the courts. Simple as that. Yet, that’s how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

In the modern era, international firms, along with the billionaires who own them, can sue elected administrations for the policies they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are held behind closed doors. Differing from national judiciaries, these panels allow no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, or even companies operating from this country. They are open only to entities based overseas.

Should an arbitration panel determines that a government measure could harm the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, even billions.

These awards represent not actual losses but funds the arbitrators decide the company could potentially have made. The administration may have to abandon its policy. It will be deterred from introducing similar legislation in that area, worried about being sued.

A Mechanism Running Rampant

Historically high figures of disputes are being brought, as firms take cues from each other, and private equity finance suits in return for a share of the awards. The outcome? National sovereignty and democratic governance are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the decisions taken by elected bodies is that this clause has been written – without public consent, and frequently under an atmosphere of extreme secrecy – into bilateral investment treaties.

A Concrete Example: The UK Coal Mine

A year ago, a conservation group won a great victory at the senior court. The justice ruled that proposals to dig the first deep coalmine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the previous government, which had endorsed the extraordinary assertion that the mine would have zero effect on our carbon budgets. The incoming administration later cancelled the permission the Tories had granted. Today, this victory could be compromised by an offshore tribunal accountable to exclusively the corporations petitioning it.

In August, a company whose final controllers are based in the Cayman Islands lodged a claim against the UK government. The previous week a tribunal in the United States was established to hear it.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had been permitted to proceed. Citizens have no idea how much this sum represents. Who is representing it against the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot the MP. The administration passes a law, the national judiciary supports it, then a international entity contests it through an unaccountable private court, and a elected official works for its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know little of the case so far, but it appears probable that he will utilise the tribunal to fight the sanctions the UK enacted against him following the invasion of Ukraine. He has already started suing Luxembourg with similar intent, demanding $16bn: an amount representing half government’s yearly income. Among the legal team representing him there? the wife of a former prime minister, married to the previous PM.

Trade specialists contend that the EU’s hesitation in using frozen Russian assets as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over sovereign states might be preventing the finance Ukraine critically depends on.

False Assurances and Mounting Threats

The public was told that such things could not occur. Previously, a former prime minister, championing the most significant and hazardous of all these agreements, stated: “We’ve signed investment treaty upon trade deal and we have never seen a issue in the past.” An expert on this issue described critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that exclusively weaker states needed to fear ISDS claims. Warnings that “when companies grasp the influence bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction has now materialised. This year, oil and gas and mining firms have filed a record number of cases against nations across the economic spectrum, contesting – similar to the Whitehaven project – official measures to prevent climate breakdown. Firms have thus far won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP