🔗 Share this article

Can you reckon our system of government works? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills pass into law. The law is upheld by the courts. End of story. Well, that was how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

Nowadays, international firms, or the billionaires behind them, have the power to sue governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are held behind closed doors. Unlike our courts, these tribunals grant no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies headquartered in this country. The door is open only to entities registered abroad.

Should an arbitration panel finds that a government measure could harm the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, even billions.

These awards are based not on real financial harm but money the arbitrators decide the company would perhaps have made. The government may have to drop the legislation. It will be deterred from introducing similar legislation in that area, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as corporations take cues from each other, and hedge funds bankroll lawsuits in exchange for a portion of the settlements. The consequence? Democratic sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede a country's own laws and the rulings enacted by elected bodies is that this clause has been written – without public consent, and typically amid conditions of extreme secrecy – within international trade agreements.

A Specific Instance: The Whitehaven Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer determined that schemes to dig the first new deep coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine would have no impact on our carbon budgets. The incoming administration later cancelled the consent the previous administration had granted. Now, this victory could be compromised by an secret arbitration panel answering to only the corporations filing the suit.

Last August, a firm whose ultimate owners reside in the Cayman Islands filed a lawsuit versus the UK government. Recently a tribunal in Washington DC was set up 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 proceed. We have no idea how much this could amount to. Who is serving as its counsel challenging the UK administration? An elected representative, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The administration makes a decision, the domestic court upholds it, then a foreign company contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

A Sanctions Lawsuit

On the same day that the court on the mining lawsuit was established, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. Details are little of the case so far, but it appears probable that he may employ the ISDS mechanism to fight the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already initiated proceedings against a small nation on these grounds, claiming a colossal sum: equivalent to half of government’s yearly income. Among the counsel acting for him in that case? a prominent lawyer, wife of the former British prime minister.

International law scholars argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states may be obstructing the money Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that these scenarios wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all investment pacts, declared: “We’ve signed trade deal upon trade deal and we have never seen a problem in the past.” A consultant on this issue described campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “once firms start to realise the power bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction has now materialised. In the current period, energy and mining firms have initiated a record number of suits against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – official measures to halt climate breakdown. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP