Can you reckon our political system functions? Perhaps similar to this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. That's it. Yet, that’s how it used to work. No longer.
The Emergence of Offshore Courts
In the modern era, foreign corporations, and the wealthy individuals behind them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels composed of business advocates. Such disputes are held behind closed doors. Differing from national judiciaries, these panels grant no right of appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, or even businesses operating from this country. Access is granted only to entities registered abroad.
Should an arbitration panel determines that a law or policy might diminish the corporation’s expected profits, it can award damages of hundreds of millions of pounds, running into billions.
These sums constitute not actual losses but funds the panel members decide the company would perhaps have made. The administration may have to abandon its policy. It will be discouraged from passing future laws of a similar nature, worried about facing litigation.
A Mechanism Spiralling Out of Control
Historically high figures of cases are being initiated, as firms learn from each other, and hedge funds finance suits in exchange for a share of the takings. The result? Sovereignty and democracy are becoming prohibitively expensive.
This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the choices taken by legislatures is that this stipulation has been written – without public consent, and frequently under conditions of extreme secrecy – within bilateral investment treaties.
A Real-World Example: The Cumbrian Coal Mine
A year ago, a conservation group secured a significant win at the senior court. The judge determined that schemes to open the first new deep coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine could have no impact on national carbon targets. The new government then withdrew the consent the Tories had issued. Now, this success faces being overturned by an secret arbitration panel accountable to exclusively the entities petitioning it.
During August, a corporate entity whose final controllers are based in the offshore financial centre filed a lawsuit against the UK government. Recently a arbitration panel in Washington DC was set up to consider the case.
The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to commence operations. We have no clear indication how much this might be. What legal team is acting on its behalf challenging the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.
The Russian Challenge
Simultaneously that the tribunal on the coalmine case was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case to date, but it is highly possible that he may employ the arbitration process to contest the sanctions the UK levied against him following the Russian aggression. He has started suing Luxembourg for this reason, seeking $16bn: equivalent to half of state's yearly budget. Part of the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.
International law scholars argue that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its aid for Ukraine stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations could be blocking the funds Ukraine critically depends on.
Misleading Claims and Mounting Threats
Politicians promised that such things wouldn’t happen. Years ago, a senior politician, championing the largest and riskiest of all investment pacts, stated: “We’ve signed trade deal after trade deal and we have never seen a problem in the past.” An expert on this topic labelled campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “as corporations start to realise the power they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.
That prediction has come to pass. Recently, energy and resource corporations have filed a record number of cases against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP
