🔗 Share this article

What is your perceive our system of government operates? It could be along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. That's it. Well, that used to be how it used to work. No longer.

The Rise of Offshore Arbitration Panels

In the modern era, overseas companies, and the wealthy individuals who own them, can sue governments for the policies they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are conducted behind closed doors. In contrast to domestic courts, these tribunals grant no opportunity to appeal or legal review. You or I are barred from bringing a case to them, nor can our government, or even enterprises based in this country. Access is granted solely for businesses based overseas.

If a tribunal finds that a government measure might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions, running into billions.

These awards are based not on real financial harm but funds the panel members conclude the company might otherwise have made. The administration might be compelled to rescind the measure. It is discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as corporations observe each other, and hedge funds fund legal actions for a share of a share of the takings. The consequence? Democratic sovereignty and democracy are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices enacted by legislatures is that this provision has been inserted – absent public approval, and often in an atmosphere of extreme secrecy – inside trade treaties.

A Real-World Case: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The justice found that proposals to dig the first new deep coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The new government later cancelled the consent the Tories had issued. Currently, this victory faces being overturned by an offshore tribunal accountable to exclusively the corporations filing the suit.

During August, a firm whose final controllers reside in the tax haven lodged a claim against the UK government. Recently a tribunal in the United States was established to adjudicate on it.

The company is suing the UK for the money it would have generated if the mine had received permission to commence operations. The public has little idea how much this could amount to. What legal team is acting on its behalf in opposition to the state? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The state enacts a policy, the high court supports it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

Simultaneously that the panel on the coalmine case was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case to date, but it seems likely that he may employ the arbitration process to contest the sanctions the UK levied against him following the war in Ukraine. He has already initiated proceedings against another European state for this reason, claiming a colossal sum: half that government’s yearly income. Included in the legal team on his side? the wife of a former prime minister, married to the former British prime minister.

Trade specialists believe that the EU’s delay in utilising seized oligarchs' funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Mounting Risks

Politicians promised that such things could not occur. Previously, a former prime minister, promoting the biggest and most dangerous of all such treaties, declared: “We’ve signed trade deal after trade deal and there has not been a case in the past.” A consultant on this issue described critics of “alarmism … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “as corporations grasp the authority they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were greeted by scepticism.

That prediction has come to pass. Recently, oil and gas and extraction companies have lodged a unprecedented number of suits against nations rich and poor, challenging – similar to the Cumbrian coalmine – government attempts to stop 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 equates to the combined GDP