🔗 Share this article

How do you reckon our political system works? Perhaps something like this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. The law is upheld by the courts. That's it. However, that used to be how it once functioned. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, foreign corporations, along with the billionaires that control them, can sue governments for the regulations they pass, at private courts made up of corporate lawyers. These proceedings are conducted behind closed doors. Differing from national judiciaries, these tribunals grant no right of appeal or judicial review. The general public are unable to file a case to them, nor can our government, or even businesses based in this country. They are open solely for businesses operating from foreign soil.

If a tribunal rules that a legislative action may compromise the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, potentially billions.

This compensation are based not on actual losses but funds the arbitrators determine the company might otherwise have made. The state could be forced to drop the legislation. It will be discouraged from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being filed, as corporations observe each other, and hedge funds bankroll lawsuits in return for a portion of the takings. The result? Sovereignty and democracy are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the decisions taken by elected bodies is that this clause has been inserted – without public consent, and typically amid a climate of total confidentiality – inside international trade agreements.

A Specific Case: The UK Coal Mine

Twelve months ago, environmental campaigners won a great victory at the high court. The judge ruled that proposals to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The new government later cancelled the licence the former government had issued. Now, this victory is under threat by an secret arbitration panel accountable to exclusively the entities petitioning it.

In August, a firm whose beneficial owners reside in the Cayman Islands initiated proceedings versus the UK government. The previous week a arbitration panel in the United States was convened to adjudicate on it.

The company is litigating against the UK for the profits it could have earned if the mine had been allowed to go ahead. We have little idea how much this might be. Who is serving as its counsel against the British government? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The state passes a law, the high court validates it, then a foreign company contests it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Case

Concurrently that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case at present, but it seems likely that he’ll use the arbitration process to fight the restrictions the UK enacted against him after the invasion of Ukraine. He has already initiated proceedings against another European state for this reason, claiming $16bn: half that government’s annual revenue. Included in the lawyers on his side? Cherie Blair, wife of the former British prime minister.

Legal experts believe that the EU’s procrastination in leveraging immobilised state funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over elected governments could be blocking the finance Ukraine urgently requires.

False Assurances and Mounting Costs

The public was told that such things wouldn’t happen. Previously, a former prime minister, promoting the most significant and hazardous of all these agreements, told us: “The UK has signed trade deal upon trade deal and there has never been a issue in the past.” An adviser on this matter labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “when companies start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the developed economies” were dismissed with scepticism.

That threat has come to pass. Recently, fossil fuel and resource corporations have filed a unprecedented number of claims against nations across the economic spectrum, opposing – similar to the Whitehaven project – official measures to stop environmental catastrophe. Corporations have thus far won vast sums by using ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP