🔗 Share this article

What is your reckon our democratic process operates? Maybe something like this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. That's it. Yet, that used to be how it used to work. Those days are over.

The Emergence of Secret Arbitration Panels

Today, international firms, or the billionaires behind them, have the power to sue elected administrations for the regulations they pass, at private courts composed of commercial attorneys. The cases are held in secret. Unlike our courts, these panels grant no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, including companies headquartered in this country. They are open solely for entities operating from foreign soil.

Should an arbitration panel rules that a law or policy could harm the corporation’s expected profits, it may order compensation of hundreds of millions, running into billions.

This compensation represent not actual losses but compensation the panel members conclude the company could potentially have made. The state might be compelled to rescind the measure. It will be hesitant to passing future laws in that area, worried about facing litigation.

A Process Growing Exponentially

Unprecedented levels of cases are being filed, as firms observe each other, and investment funds finance suits in exchange for a portion of the settlements. The result? Sovereignty and democratic governance are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the rulings made by parliaments is that this stipulation has been incorporated – without democratic mandate, and typically amid conditions of total confidentiality – inside bilateral investment treaties.

A Specific Case: The Cumbrian Coalmine

Last year, activists won a great victory at the high court. The presiding officer ruled that plans to excavate the first deep coalmine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine could have no consequence on climate commitments. The Labour government later cancelled the consent the previous administration had granted. Today, this success is under threat by an offshore tribunal reporting to only the companies filing the suit.

Last August, a company whose final controllers reside in the tax haven lodged a claim versus the UK government. Last week a tribunal in the United States was set up to consider the case.

The claimant is seeking compensation from the UK for the profits it might have made if the mine had been allowed to proceed. We have no clear indication how much this could amount to. What legal team is acting on its behalf against the state? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The state enacts a policy, the domestic court upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a elected official works for its behalf.

The Russian Lawsuit

Simultaneously that the panel on the mining lawsuit was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case so far, but it seems likely that he will utilise the ISDS mechanism to challenge the penalties the UK levied against him after the Russian aggression. He has already initiated proceedings against a small nation on these grounds, seeking sixteen billion dollars: an amount representing half nation's annual revenue. Part of the counsel representing him there? a prominent lawyer, spouse of the ex-UK leader.

International law scholars believe that the EU’s procrastination in using frozen state funds as security for its financial support package arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Growing Risks

Politicians promised that these scenarios were not possible. In 2014, a government leader, advocating for the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty upon trade deal and we have never seen a case in the past.” An expert on this topic described critics of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries needed to fear such legal actions. Cautionary notes that “as corporations grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by widespread derision.

That threat has come to pass. In the current period, energy and resource corporations have filed a historic level of cases against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – state efforts to halt global warming. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded the majority. That is equivalent to the combined GDP