Can you perceive our political system works? Maybe something like this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. End of story. Yet, that used to be how it once functioned. Those days are over.
In the modern era, international firms, along with the oligarchs that control them, can sue nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. Such disputes are held away from public scrutiny. In contrast to domestic courts, these panels allow no avenue for appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even companies operating from this country. Access is granted only to corporations registered abroad.
Should an arbitration panel rules that a legislative action might diminish the corporation’s expected profits, it may order damages of vast sums, running into billions.
This compensation are based not on real financial harm but money the tribunal officials determine the company would perhaps have made. The government could be forced to abandon its policy. It becomes hesitant to introducing similar legislation in that area, worried about facing litigation.
Record numbers of cases are being filed, as companies take cues from each other, and hedge funds finance suits in return for a share of the settlements. The consequence? Sovereignty and democratic governance are becoming unaffordable.
The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings made by elected bodies is that this stipulation has been incorporated – without public consent, and typically amid a climate of total confidentiality – within trade treaties.
Twelve months ago, a conservation group won a great victory at the senior court. The presiding officer found that plans to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had agreed to the questionable argument that the mine would have no consequence on our carbon budgets. The incoming administration later cancelled the permission the Tories had issued. Today, this success could be compromised by an secret arbitration panel reporting to only the corporations filing the suit.
In August, a corporate entity whose beneficial owners are located in the Cayman Islands lodged a claim against the UK government. Last week a dispute settlement body in the US capital was established to hear it.
The company is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to commence operations. Citizens have little idea how much this could amount to. What legal team is acting on its behalf against the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The government passes a law, the high court validates it, then a foreign company contests it through an unaccountable private court, and a elected official works for its behalf.
Simultaneously that the court on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know scarce of the case at present, but it seems likely that he will utilise the arbitration process to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has filed a claim against a small nation for this reason, claiming $16bn: half that government’s yearly income. Part of the lawyers representing him there? a prominent lawyer, wife of the former British prime minister.
Trade specialists contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, unaccountable authority over sovereign states might be preventing the funds Ukraine critically depends on.
The public was told that such things wouldn’t happen. In 2014, a former prime minister, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and there has not been a problem in the past.” An adviser on this topic accused campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “once firms start to realise the power they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.
That prediction is now a reality. Recently, oil and gas and mining firms have lodged a unprecedented number of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to prevent global warming. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP
A tech journalist and software developer with over a decade of experience covering AI advancements and cybersecurity trends across Europe.
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