🔗 Share this article

How do you perceive our system of government functions? Perhaps similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. Yet, that used to be how it operated in the past. Not anymore.

The Rise of Shadow Arbitration Panels

Today, foreign corporations, along with the billionaires that control them, are able to litigate against governments for the regulations they pass, at private courts composed of corporate lawyers. The cases take place away from public scrutiny. In contrast to domestic courts, these tribunals provide no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even businesses based in this country. Access is granted only to businesses registered abroad.

If a tribunal finds that a government measure could harm the corporation’s projected profits, it can award financial penalties of vast sums, running into billions.

These sums are based not on actual losses but money the arbitrators decide the company would perhaps have made. The state might be compelled to drop the legislation. It becomes hesitant to passing future laws along the same lines, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being filed, as corporations take cues from each other, and hedge funds finance suits in exchange for a portion of the settlements. The outcome? National sovereignty and democratic governance are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can override a country's own laws and the decisions enacted by parliaments is that this provision has been incorporated – without public consent, and typically amid a climate of extreme secrecy – within international trade agreements.

A Specific Instance: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the high court. The judge ruled that plans to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The Labour government then withdrew the licence the former government had approved. Now, this success could be compromised by an foreign court accountable to no one but the companies bringing the case.

Last August, a firm whose final controllers reside in the offshore financial centre filed a lawsuit against the UK government. The previous week a tribunal in the US capital was established to consider the case.

The company is litigating against the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have no clear indication how much this might be. Who is acting on its behalf against the state? An elected representative, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a international entity disputes it through an secretive private court, and a sitting MP represents its behalf.

An Oligarch's Case

On the same day that the tribunal on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows scarce of the case to date, but it appears probable that he’ll use the ISDS mechanism to challenge the penalties the UK enacted against him after the Russian aggression. He has already started suing Luxembourg for this reason, demanding $16bn: an amount representing half government’s yearly income. Part of the lawyers representing him there? the wife of a former prime minister, spouse of the previous PM.

International law scholars contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine urgently requires.

Empty Promises and Mounting Threats

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, advocating for the largest and riskiest of all these agreements, declared: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” An adviser on this issue described critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies grasp the authority bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were met with scepticism.

That threat is now a reality. In the current period, oil and gas and resource corporations have initiated a historic level of cases against nations across the economic spectrum, contesting – as in the case of the UK mine – official measures to prevent environmental catastrophe. Firms have to date won vast sums by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP