Can you understand our democratic process works? It could be something like this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. The law is upheld by the courts. End of story. Well, that’s how it used to work. Those days are over.
Nowadays, foreign corporations, along with the oligarchs that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. The cases are held in secret. In contrast to domestic courts, these bodies allow no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. The door is open solely for entities registered abroad.
Should an arbitration panel determines that a law or policy could harm the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, even billions.
This compensation constitute not real financial harm but compensation the arbitrators determine the company would perhaps have made. The administration might be compelled to rescind the measure. It will be deterred from introducing similar legislation in that area, worried about being sued.
Record numbers of disputes are being brought, as firms take cues from each other, and private equity fund legal actions in exchange for a share of the takings. The result? Democratic sovereignty and democracy are now unaffordable.
The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the rulings made by elected bodies is that this provision has been inserted – absent public approval, and frequently under a climate of profound opacity – into bilateral investment treaties.
Last year, a conservation group achieved a major legal triumph at the high court. The judge found that schemes to dig the first new deep coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no impact on national carbon targets. The new government subsequently revoked the licence the previous administration had approved. Now, this legal outcome faces being overturned by an secret arbitration panel answering to only the companies filing the suit.
During August, a firm whose beneficial owners are located in the Cayman Islands lodged a claim against the UK government. Last week a tribunal in the US capital was set up to adjudicate on it.
The claimant is suing the UK for the profits it could have earned if the mine had been permitted to commence operations. The public has no clear indication how much this might be. Which individual is serving as its counsel challenging the state? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state makes a decision, the domestic court upholds it, then a foreign company contests it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.
Concurrently that the court on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case to date, but it is highly possible that he may employ the arbitration process to fight the sanctions the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against Luxembourg for this reason, demanding a colossal sum: an amount representing half state's yearly income. Among the legal team representing him there? a prominent lawyer, spouse of the former British prime minister.
International law scholars believe that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine desperately needs.
Politicians promised that these events could not occur. Previously, a former prime minister, advocating for the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” An adviser on this issue labelled activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations should be concerned by ISDS claims. Warnings that “as corporations begin to understand the influence bestowed upon them, they will shift their focus from the poorer states to the strong ones” were dismissed with scepticism.
That warning has now materialised. This year, fossil fuel and extraction companies have initiated a historic level of claims against nations both wealthy and developing, opposing – similar to the Whitehaven project – official measures to stop environmental catastrophe. Corporations have so far won vast sums through ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP
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