🔗 Share this article

How do you perceive our democratic process operates? Perhaps similar to this. We elect MPs. They legislate on bills. If a majority is secured, the bills pass into law. The law is upheld by the courts. End of story. Yet, that was how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

In the modern era, foreign corporations, or the wealthy individuals behind them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels staffed by business advocates. The cases take place in secret. Unlike our courts, these panels grant no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even businesses headquartered in this country. The door is open solely for entities based overseas.

Should an arbitration panel determines that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, potentially billions.

These sums represent not tangible damages but money the tribunal officials decide the company could potentially have made. The government might be compelled to drop the legislation. It becomes hesitant to introducing similar legislation of a similar nature, due to the risk of being sued.

A Process Running Rampant

Record numbers of cases are being brought, as companies learn from each other, and hedge funds bankroll lawsuits in exchange for a portion of the settlements. The outcome? National sovereignty and popular rule are now too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the choices taken by legislatures is that this provision has been written – absent public approval, and frequently under a climate of extreme secrecy – within bilateral investment treaties.

A Specific Example: The Cumbrian Coalmine

Last year, environmental campaigners won a great victory at the high court. The presiding officer ruled that schemes to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government then withdrew the permission the previous administration had granted. Currently, this legal outcome could be compromised by an foreign court accountable to exclusively the companies filing the suit.

In August, a firm whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. Recently a dispute settlement body in the US capital was convened to hear it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this could amount to. Which individual is serving as its counsel in opposition to the UK administration? An elected representative, and ex-law officer in the outgoing administration, that great patriot the MP. The state enacts a policy, the domestic court validates it, then a foreign company challenges it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Lawsuit

On the same day that the panel on the coal mine dispute was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case to date, but it appears probable that he’ll use the arbitration process to challenge the restrictions the UK levied against him following the Russian aggression. He has already started suing a small nation with similar intent, seeking a colossal sum: equivalent to half of state's yearly budget. Part of the lawyers representing him there? the wife of a former prime minister, married to the former British prime minister.

Legal experts argue that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that these scenarios were not possible. Years ago, a government leader, championing the most significant and hazardous of all these agreements, told us: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” An expert on this issue accused activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by these lawsuits. Predictions that “when companies start to realise the authority they’ve been granted, they will turn their attention from the weak nations to the developed economies” were dismissed with general mockery.

That threat has now materialised. Recently, oil and gas and mining firms have lodged a historic level of claims against nations rich and poor, contesting – as in the case of the UK mine – state efforts to prevent global warming. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured the majority. That represents the combined GDP