🔗 Share this article

What is your understand our system of government works? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Statutes is upheld by the courts. End of story. Well, that was how it once functioned. Those days are over.

The Emergence of Offshore Arbitration Panels

Nowadays, foreign corporations, and the oligarchs who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. The cases are conducted away from public scrutiny. Unlike our courts, these tribunals allow no avenue for appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even companies operating from this country. Access is granted only to businesses based overseas.

Should an arbitration panel determines that a government measure may compromise the corporation’s projected profits, it can award damages of hundreds of millions, potentially billions.

These sums represent not real financial harm but funds the panel members decide the company would perhaps have made. The government could be forced to rescind the measure. It becomes deterred from passing future laws along the same lines, worried about being sued.

A System Running Rampant

Unprecedented levels of legal actions are being brought, as corporations take cues from each other, and investment funds finance suits for a share of a cut of the takings. The outcome? Democratic sovereignty and popular rule are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the choices taken by legislatures is that this stipulation has been inserted – absent public approval, and typically amid conditions of profound opacity – inside trade treaties.

A Real-World Instance: The UK Coalmine

A year ago, environmental campaigners won a great victory at the High Court. The judge found that schemes to excavate the first major coal mine in the UK for three decades, in Cumbria, were found to be wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine could have no impact on our carbon budgets. The new government then withdrew the consent the former government had approved. Currently, this victory is under threat by an offshore tribunal answering to exclusively the corporations bringing the case.

Last August, a corporate entity whose final controllers reside in the Cayman Islands initiated proceedings against the UK government. Last week a dispute settlement body in Washington DC was convened to consider the case.

The company is seeking compensation from the UK for the profits it would have generated if the mine had received permission to go ahead. Citizens have no clear indication how much this sum represents. What legal team is acting on its behalf against the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The government enacts a policy, the domestic court upholds it, then a overseas corporation challenges it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case at present, but it seems likely that he may employ the ISDS mechanism to fight the penalties the UK levied against him subsequent to the invasion of Ukraine. He has initiated proceedings against Luxembourg for this reason, demanding sixteen billion dollars: an amount representing half government’s yearly income. Part of the lawyers on his side? Cherie Blair, wife of the previous PM.

Trade specialists believe that the EU’s hesitation in utilising seized oligarchs' funds as security for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments may be obstructing the funds Ukraine critically depends on.

Empty Promises and Growing Threats

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, advocating for the biggest and most dangerous of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” An expert on this matter accused campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations should be concerned by these lawsuits. Warnings that “as corporations grasp the power they now possess, they will shift their focus from the weak nations to the developed economies” were met with general mockery.

That threat has come to pass. Recently, fossil fuel and mining firms have filed a historic level of cases against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – state efforts to prevent climate breakdown. Companies have so far won vast sums by using ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP