🔗 Share this article

How do you reckon our system of government functions? Maybe along the lines of this. We elect MPs. They vote on bills. If a majority is secured, the bills pass into law. The law is upheld by the courts. Simple as that. However, that was how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

Today, overseas companies, or the wealthy individuals behind them, have the power to sue governments for the policies they pass, at offshore tribunals staffed by corporate lawyers. Such disputes are held away from public scrutiny. Unlike our courts, these panels provide no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even businesses headquartered in this country. Access is granted exclusively to entities registered abroad.

If a tribunal determines that a government measure may compromise the corporation’s anticipated profits, it can award damages of hundreds of millions, running into billions.

These awards are based not on tangible damages but money the arbitrators decide the company would perhaps have made. The government may have to abandon its policy. It becomes discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A System Spiralling Out of Control

Historically high figures of cases are being brought, as companies take cues from each other, and private equity bankroll lawsuits in return for a share of the takings. The result? Sovereignty and popular rule are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the rulings taken by elected bodies is that this clause has been inserted – absent public approval, and often in a climate of extreme secrecy – into international trade agreements.

A Specific Example: The Cumbrian Coal Mine

Last year, activists won a great victory at the High Court. The justice ruled that plans to dig the first new deep coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had agreed to the bizarre claim that the mine could have no impact on national carbon targets. The Labour government then withdrew the permission the Tories had approved. Today, this legal outcome faces being overturned by an foreign court accountable to exclusively the companies petitioning it.

Last August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings challenging the UK government. Last week a arbitration panel in the United States was set up to consider the case.

The company is suing the UK for the money it might have made if the mine had been allowed to commence operations. The public has no idea how much this sum represents. What legal team is representing it in opposition to the British government? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the high court supports it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case to date, but it is highly possible that he will utilise the tribunal to challenge the restrictions the UK imposed on him following the Russian aggression. He has previously started suing Luxembourg on these grounds, claiming a colossal sum: an amount representing half government’s yearly income. Part of the counsel on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars believe that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its financial support package is due to concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over sovereign states might be preventing the funds Ukraine desperately needs.

Empty Promises and Growing Risks

Politicians promised that such things could not occur. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” A consultant on this topic accused activists of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations start to realise the power bestowed upon them, they will turn their attention from the weak nations to the strong ones” were met with widespread derision.

That prediction has come to pass. In the current period, energy and resource corporations have initiated a historic level of cases against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to prevent global warming. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP