🔗 Share this article

Can you understand our system of government works? Perhaps along the lines of this. We elect MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Statutes are enforced by the courts. That's it. Yet, that used to be how it used to work. Those days are over.

The Rise of Secret Arbitration Panels

Today, foreign corporations, or the wealthy individuals behind them, have the power to sue governments for the laws they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even enterprises based in this country. Access is granted exclusively to entities based overseas.

If a tribunal determines that a government measure could harm the corporation’s projected profits, it may order compensation of vast sums, running into billions.

These awards are based not on tangible damages but funds the tribunal officials conclude the company could potentially have made. The state might be compelled to rescind the measure. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of facing litigation.

A Mechanism Running Rampant

Historically high figures of disputes are being brought, as corporations learn from each other, and private equity finance suits for a share of a cut of the settlements. The outcome? Sovereignty and democratic governance are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the rulings made by parliaments is that this clause has been incorporated – without public consent, and typically amid conditions of extreme secrecy – within international trade agreements.

A Real-World Example: The UK Coal Mine

A year ago, activists achieved a major legal triumph at the high court. The presiding officer determined that schemes to excavate the first deep coalmine in the UK for a generation, in northwest England, were wrongly permitted by the Conservative government, which had endorsed the questionable argument that the mine could have no impact on national carbon targets. The new government subsequently revoked the consent the former government had approved. Currently, this legal outcome is under threat by an secret arbitration panel answering to no one but the corporations filing the suit.

In August, a company whose ultimate owners reside in the offshore financial centre lodged a claim versus the UK government. The previous week a dispute settlement body in the United States was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has no clear indication how much this sum represents. Which individual is acting on its behalf challenging the British government? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The administration enacts a policy, the high court upholds it, then a international entity contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the penalties the UK enacted against him following the war in Ukraine. He has already filed a claim against Luxembourg with similar intent, claiming sixteen billion dollars: an amount representing half nation's annual revenue. Included in the lawyers acting for him in that case? Cherie Blair, married to the ex-UK leader.

Trade specialists contend that the EU’s delay in leveraging immobilised state funds as security for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments could be blocking the funds Ukraine critically depends on.

False Assurances and Growing Threats

Politicians promised that such things could not occur. Years ago, a former prime minister, promoting the largest and riskiest of all investment pacts, declared: “The UK has signed trade deal upon trade deal and there has never been a issue in the past.” A consultant on this matter accused activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries should be concerned by these lawsuits. Warnings that “when companies grasp the power they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That warning has come to pass. In the current period, oil and gas and extraction companies have initiated a unprecedented number of claims against nations both wealthy and developing, challenging – like the example of the UK mine – state efforts to halt environmental catastrophe. Companies have to date won $114bn via ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP