🔗 Share this article

How do you perceive our democratic process works? Maybe along the lines of this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills pass into law. Statutes is upheld by the courts. That's it. Well, that used to be how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Today, international firms, along with the billionaires behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of business advocates. These proceedings are conducted behind closed doors. Differing from national judiciaries, these panels grant no right of appeal or legal review. You or I are unable to file a case to them, nor can our government, or even enterprises headquartered in this country. They are open exclusively to businesses operating from foreign soil.

If a tribunal determines that a legislative action may compromise the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These sums are based not on actual losses but funds the arbitrators conclude the company could potentially have made. The administration might be compelled to abandon its policy. It becomes discouraged from passing future laws of a similar nature, worried about incurring a lawsuit.

A Process Growing Exponentially

Historically high figures of cases are being filed, as firms observe each other, and private equity fund legal actions in return for a share of the awards. The consequence? Democratic sovereignty and democracy are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the rulings enacted by parliaments is that this provision has been written – without democratic mandate, and typically amid a climate of profound opacity – into trade treaties.

A Specific Instance: The Cumbrian Coal Mine

Last year, activists achieved a major legal triumph at the senior court. The justice found that proposals to dig the first deep coalmine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine would have had no impact on climate commitments. The new government then withdrew the permission the former government had approved. Now, this victory could be compromised by an foreign court reporting to no one but the companies bringing the case.

In August, a firm whose final controllers are based in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was set up to consider the case.

This firm is litigating against the UK for the profits it would have generated if the mine had received permission to commence operations. We have no idea how much this could amount to. Which individual is representing it against the state? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot the MP. The government makes a decision, the domestic court validates it, then a international entity challenges it through an secretive arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coalmine case was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case to date, but it is highly possible that he will utilise the tribunal to fight the penalties the UK imposed on him following the war in Ukraine. He has initiated proceedings against Luxembourg with similar intent, seeking a colossal sum: equivalent to half of state's yearly budget. Among the counsel acting for him in that case? Cherie Blair, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over democratic administrations may be obstructing the funds Ukraine desperately needs.

Empty Promises and Escalating Costs

Politicians promised that these scenarios wouldn’t happen. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, stated: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” A consultant on this topic accused critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about these lawsuits. Predictions that “once firms begin to understand the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were met with widespread derision.

That threat has now materialised. Recently, oil and gas and mining firms have filed a historic level of claims against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained the majority. That equates to the combined GDP