What is your understand our political system functions? It could be similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. However, that was how it operated in the past. No longer.
The Emergence of Secret Arbitration Panels
Nowadays, overseas companies, and the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals made up of corporate lawyers. These proceedings take place away from public scrutiny. Differing from national judiciaries, these bodies grant no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, or even companies headquartered in this country. Access is granted exclusively to corporations based overseas.
If a tribunal finds that a law or policy may compromise the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, even billions.
This compensation represent not tangible damages but funds the tribunal officials conclude the company could potentially have made. The administration could be forced to abandon its policy. It becomes deterred from introducing similar legislation along the same lines, worried about incurring a lawsuit.
A Process Running Rampant
Unprecedented levels of legal actions are being initiated, as corporations observe each other, and private equity finance suits in exchange for a cut of the awards. The consequence? National sovereignty and democratic governance are becoming prohibitively expensive.
The system is known as “investor-state dispute settlement” (ISDS). The explanation it can override a country's own laws and the rulings enacted by elected bodies is that this stipulation has been incorporated – without public consent, and often in conditions of profound opacity – inside international trade agreements.
A Specific Instance: The Cumbrian Coal Mine
Twelve months ago, environmental campaigners won a great victory at the senior court. The justice ruled that schemes to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have no impact on national carbon targets. The new government subsequently revoked the licence the former government had approved. Today, this success could be compromised by an foreign court accountable to exclusively the corporations petitioning it.
During August, a corporate entity whose ultimate owners reside in the Cayman Islands lodged a claim versus the UK government. Recently a dispute settlement body in the US capital was established to adjudicate on it.
This firm is litigating against the UK for the profits it would have generated if the mine had received permission to proceed. Citizens have no idea how much this could amount to. Who is acting on its behalf challenging the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a overseas corporation contests it through an unaccountable private court, and a sitting MP works for its behalf.
An Oligarch's Case
On the same day that the panel on the coalmine case was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it seems likely that he’ll use the tribunal to contest the penalties the UK enacted against him following the invasion of Ukraine. He has already filed a claim against a small nation for this reason, claiming $16bn: equivalent to half of government’s annual revenue. Part of the counsel acting for him in that case? Cherie Blair, married to the previous PM.
Trade specialists contend that the EU’s delay in using frozen state funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states might be preventing the finance Ukraine critically depends on.
Empty Promises and Growing Risks
The public was told that such things wouldn’t happen. Years ago, a government leader, advocating for the biggest and most dangerous of all these agreements, told us: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” A consultant on this issue labelled campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries had to worry about these lawsuits. Warnings that “once firms start to realise the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by general mockery.
That warning is now a reality. This year, energy and extraction companies have initiated a unprecedented number of cases against nations rich and poor, challenging – similar to the UK mine – official measures to stop climate breakdown. Firms have thus far won vast sums through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP
