🔗 Share this article

Can you understand our democratic process operates? Maybe similar to this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills become law. The law are enforced by the courts. End of story. Yet, that was how it once functioned. Not anymore.

The Advent of Offshore Arbitration Panels

Today, international firms, and the billionaires who own them, can sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these tribunals provide no right of appeal or judicial review. The general public cannot take a case to them, and neither can our government, including enterprises based in this country. Access is granted exclusively to entities registered abroad.

Should an arbitration panel determines that a government measure may compromise the corporation’s projected profits, it can award compensation of vast sums, even billions.

These awards represent not actual losses but money the panel members conclude the company would perhaps have made. The state may have to drop the legislation. It becomes discouraged from passing future laws in that area, worried about incurring a lawsuit.

A Process Growing Exponentially

Record numbers of legal actions are being initiated, as firms learn from each other, and investment funds finance suits in return for a share of the settlements. The outcome? Democratic sovereignty and popular rule are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the choices enacted by parliaments is that this provision has been written – without democratic mandate, and frequently under conditions of extreme secrecy – within bilateral investment treaties.

A Specific Example: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The presiding officer ruled that schemes to excavate the first major coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on climate commitments. The Labour government subsequently revoked the licence the previous administration had granted. Currently, this victory faces being overturned by an secret arbitration panel reporting to no one but the entities petitioning it.

In August, a company whose beneficial owners are located in the Cayman Islands initiated proceedings against the UK government. Recently a tribunal in the United States was established to hear it.

The claimant is suing the UK for the money it would have generated if the mine had been permitted to go ahead. The public has no idea how much this could amount to. Which individual is representing it against the British government? A member of parliament, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The government passes a law, the high court upholds it, then a international entity challenges it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Case

On the same day that the court on the coalmine case was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case to date, but it is highly possible that he may employ the arbitration process to challenge the restrictions the UK imposed on him following the war in Ukraine. He has filed a claim against a small nation on these grounds, demanding sixteen billion dollars: equivalent to half of nation's yearly income. Among the lawyers acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Legal experts believe that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Mounting Risks

The public was told that such things wouldn’t happen. In 2014, a government leader, championing the most significant and hazardous of all such treaties, declared: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” An adviser on this topic accused activists of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations needed to fear such legal actions. Warnings that “when companies grasp the authority they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with scepticism.

That prediction is now a reality. Recently, energy and resource corporations have lodged a record number of suits against nations both wealthy and developing, contesting – like the example of the Whitehaven project – official measures to halt environmental catastrophe. Firms have so far won vast sums via ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP