🔗 Share this article

Can you reckon our system of government works? Perhaps something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. The law are enforced by the courts. End of story. Well, that was how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

In the modern era, international firms, along with the wealthy individuals who own them, are able to litigate against governments for the regulations they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are conducted behind closed doors. In contrast to domestic courts, these tribunals grant no right of appeal or legal review. The general public cannot take a case to them, and neither can our government, or even enterprises operating from this country. They are open exclusively to businesses based overseas.

When a secret court finds that a government measure might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions, running into billions.

These awards are based not on actual losses but money the tribunal officials decide the company would perhaps have made. The state might be compelled to drop the legislation. It is deterred from passing future laws along the same lines, worried about facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being initiated, as corporations learn from each other, and investment funds fund legal actions in exchange for a portion of the settlements. The result? National sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the decisions enacted by parliaments is that this clause has been written – without public consent, and typically amid conditions of extreme secrecy – within international trade agreements.

A Specific Case: The Cumbrian Coalmine

Twelve months ago, a conservation group secured a significant win at the High Court. The justice determined that proposals to excavate the first deep coalmine in the UK for three decades, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The Labour government later cancelled the licence the former government had issued. Currently, this success faces being overturned by an offshore tribunal accountable to no one but the corporations petitioning it.

In August, a corporate entity whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. Last week a tribunal in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to commence operations. Citizens have no clear indication how much this could amount to. Who is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the high court upholds it, then a foreign company disputes it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Case

Simultaneously that the panel on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case at present, but it is highly possible that he will utilise the arbitration process to contest the penalties the UK enacted against him following the invasion of Ukraine. He has already started suing a small nation with similar intent, claiming a colossal sum: half that nation's annual revenue. Included in the counsel acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists contend that the EU’s procrastination in using frozen Russian assets 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 investment pact. This remarkable, secretive influence over elected governments could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that such things were not possible. Previously, a government leader, advocating for the largest and riskiest of all investment pacts, stated: “The UK has signed trade deal after trade deal and we have never seen a problem in the past.” An expert on this topic described activists of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries needed to fear these lawsuits. Predictions that “as corporations grasp the influence they now possess, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with scepticism.

That threat is now a reality. This year, fossil fuel and mining firms have initiated a historic level of cases against nations rich and poor, challenging – as in the case of the Whitehaven project – official measures to stop environmental catastrophe. Corporations have to date won vast sums through ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP