What is your understand our system of government functions? Perhaps similar to this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills become law. The law is upheld by the courts. Simple as that. However, that was how it operated in the past. Those days are over.
Today, overseas companies, along with the billionaires behind them, have the power to sue governments for the regulations they pass, at secret arbitration panels staffed by business advocates. These proceedings are held behind closed doors. Unlike our courts, these bodies allow no right of appeal or judicial review. You or I cannot take a case to them, nor can our government, or even businesses operating from this country. Access is granted exclusively to entities registered abroad.
When a secret court rules that a law or policy could harm the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, running into billions.
This compensation represent not real financial harm but compensation the tribunal officials decide the company could potentially have made. The state might be compelled to rescind the measure. It will be deterred from enacting future policies of a similar nature, worried about incurring a lawsuit.
Historically high figures of cases are being brought, as companies observe each other, and private equity fund legal actions for a share of a share of the settlements. The outcome? Democratic sovereignty and popular rule are now prohibitively expensive.
The process is known as “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the choices enacted by legislatures is that this provision has been incorporated – without democratic mandate, and frequently under a climate of profound opacity – into international trade agreements.
Last year, a conservation group secured a significant win at the senior court. The justice found that schemes to dig the first deep coalmine in the UK for a generation, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine could have no consequence on our carbon budgets. The Labour government later cancelled the consent the former government had approved. Today, this legal outcome is under threat by an offshore tribunal answering to no one but the entities bringing the case.
Last August, a company whose final controllers are located in the offshore financial centre filed a lawsuit against the UK government. Last week a tribunal in Washington DC was convened to consider the case.
The company is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has no idea how much this could amount to. What legal team is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the national judiciary validates it, then a foreign company contests it through an unaccountable private court, and a elected official acts on its behalf.
Simultaneously that the panel on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case to date, but it appears probable that he may employ the arbitration process to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already started suing a small nation on these grounds, seeking $16bn: an amount representing half government’s annual revenue. Part of the lawyers on his side? Cherie Blair, spouse of the former British prime minister.
Legal experts argue that the EU’s procrastination in leveraging immobilised Russian assets as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, secretive influence over sovereign states could be blocking the finance Ukraine critically depends on.
We were assured that these scenarios could not occur. Previously, a government leader, promoting the most significant and hazardous of all investment pacts, stated: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this issue labelled activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “once firms grasp the power they now possess, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by general mockery.
That prediction has now materialised. This year, fossil fuel and mining firms have initiated a unprecedented number of suits against nations rich and poor, opposing – like the example of the UK mine – state efforts to halt global warming. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP
A tech analyst and business strategist with over a decade of experience in global markets, specializing in digital transformation and innovation.
