🔗 Share this article

Can you perceive our political system functions? Perhaps along the lines of this. We elect MPs. They vote on bills. When a majority is obtained, the bills pass into law. Legislation is upheld by the courts. Simple as that. However, that used to be how it once functioned. No longer.

The Advent of Secret Tribunals

Nowadays, foreign corporations, or the billionaires who own them, are able to litigate against nation states for the policies they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are held away from public scrutiny. In contrast to domestic courts, these tribunals allow no opportunity to appeal or judicial review. The general public are unable to file a case to them, just as our government, or even enterprises headquartered in this country. Access is granted exclusively to entities based overseas.

When a secret court finds that a legislative action could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, running into billions.

These awards constitute not real financial harm but funds the arbitrators determine the company might otherwise have made. The administration could be forced to rescind the measure. It is hesitant to passing future laws in that area, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Historically high figures of cases are being filed, as firms learn from each other, and investment funds fund legal actions for a share of a share of the takings. The outcome? Sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the decisions made by parliaments is that this clause has been incorporated – without public consent, and typically amid an atmosphere of total confidentiality – inside international trade agreements.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, activists secured a significant win at the high court. The judge found that proposals to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine would have no impact on our carbon budgets. The Labour government later cancelled the permission the Tories had approved. Today, this success could be compromised by an secret arbitration panel answering to no one but the corporations petitioning it.

Last August, a corporate entity whose beneficial owners reside in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in the US capital was established to adjudicate on it.

This firm is seeking compensation from the UK for the money it might have made if the mine had received permission to go ahead. We have no idea how much this might be. What legal team is acting on its behalf against the UK administration? A sitting MP, and ex-law officer in the Conservative government, the noted patriot the MP. The administration makes a decision, the domestic court validates it, then a foreign company challenges it through an secretive offshore tribunal, and a sitting MP represents its behalf.

The Russian Challenge

Simultaneously that the court on the coalmine case was convened, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows little of the case at present, but it is highly possible that he may employ the arbitration process to challenge the penalties the UK imposed on him subsequent to the Russian aggression. He has previously initiated proceedings against Luxembourg with similar intent, claiming $16bn: an amount representing half nation's yearly income. Among the lawyers on his side? a prominent lawyer, wife of the former British prime minister.

Legal experts argue that the EU’s delay in leveraging immobilised state funds as guarantee for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over sovereign states could be blocking the finance Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that such things were not possible. Years ago, a former prime minister, championing the most significant and hazardous of all investment pacts, stated: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” An adviser on this issue described campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries needed to fear ISDS claims. Warnings that “when companies start to realise the influence they now possess, they will shift their focus from the poorer states to the wealthy nations” were greeted by general mockery.

That prediction is now a reality. Recently, oil and gas and resource corporations have initiated a unprecedented number of cases against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – official measures to halt global warming. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained the majority. That represents the combined GDP