What is your reckon our system of government operates? It could be something like this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. However, that used to be how it once functioned. No longer.
Nowadays, overseas companies, along with the oligarchs that control them, have the power to sue elected administrations for the policies they pass, at offshore tribunals made up of business advocates. Such disputes are held in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or legal review. You or I are unable to file a case to them, and neither can our government, including enterprises operating from this country. Access is granted only to corporations based overseas.
If a tribunal finds that a government measure may compromise the corporation’s expected profits, it may order damages of hundreds of millions of pounds, potentially billions.
These awards are based not on actual losses but money the tribunal officials decide the company could potentially have made. The administration could be forced to rescind the measure. It is deterred from passing future laws of a similar nature, for fear of facing litigation.
Historically high figures of disputes are being filed, as firms learn from each other, and private equity fund legal actions for a share of a share of the settlements. The result? Sovereignty and democracy are turning into unaffordable.
The system is known as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the choices made by parliaments is that this provision has been incorporated – without public consent, and frequently under conditions of total confidentiality – into international trade agreements.
Last year, environmental campaigners achieved a major legal triumph at the High Court. The judge found that plans to open the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The incoming administration later cancelled the licence the previous administration had approved. Currently, this legal outcome is under threat by an secret arbitration panel reporting to only the corporations petitioning it.
In August, a company whose beneficial owners reside in the offshore financial centre initiated proceedings versus the UK government. Recently a arbitration panel in Washington DC was convened to adjudicate on it.
The company is suing the UK for the profits it would have generated if the mine had received permission to commence operations. Citizens have no clear indication how much this might be. What legal team is serving as its counsel challenging the state? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the high court supports it, then a foreign company contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.
Simultaneously that the court on the coal mine dispute was established, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case to date, but it is highly possible that he may employ the ISDS mechanism to contest the penalties the UK levied against him subsequent to the invasion of Ukraine. He has already filed a claim against Luxembourg for this reason, demanding sixteen billion dollars: an amount representing half state's annual revenue. Among the legal team representing him there? the wife of a former prime minister, wife of the previous PM.
International law scholars believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments might be preventing the finance Ukraine critically depends on.
Politicians promised that these scenarios could not occur. Previously, a former prime minister, championing the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade agreement after trade deal and we have never seen a case in the past.” A consultant on this topic labelled critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations begin to understand the authority they now possess, they will turn their attention from the weak nations to the wealthy nations” were greeted by scepticism.
That warning has now materialised. In the current period, oil and gas and resource corporations have initiated a unprecedented number of suits against nations rich and poor, contesting – like the example of the Whitehaven project – government attempts to stop climate breakdown. Companies have so far won $114bn through ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP
