Can you perceive our democratic process operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. That's it. Well, that was how it operated in the past. Those days are over.
Nowadays, overseas companies, and the wealthy individuals behind them, are able to litigate against governments for the policies they pass, at offshore tribunals composed of corporate lawyers. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these tribunals allow no avenue for appeal or legal review. You or I cannot take a case to them, nor can our government, or even companies based in this country. The door is open only to entities operating from foreign soil.
Should an arbitration panel determines that a law or policy could harm the corporation’s projected profits, it can award financial penalties of hundreds of millions, even billions.
These awards constitute not real financial harm but funds the panel members conclude the company would perhaps have made. The state could be forced to rescind the measure. It is hesitant to introducing similar legislation of a similar nature, worried about being sued.
Record numbers of legal actions are being initiated, as firms take cues from each other, and private equity fund legal actions in return for a share of the awards. The consequence? Sovereignty and popular rule are becoming too costly.
This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the rulings made by elected bodies is that this provision has been written – without democratic mandate, and often in conditions of total confidentiality – inside bilateral investment treaties.
Last year, environmental campaigners won a great victory at the High Court. The presiding officer found that schemes to open the first new deep coal mine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the licence the former government had granted. Today, this legal outcome could be compromised by an secret arbitration panel reporting to no one but the corporations petitioning it.
During August, a firm whose final controllers are based in the Cayman Islands filed a lawsuit against the UK government. Recently a dispute settlement body in Washington DC was established to hear it.
The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to go ahead. We have little idea how much this sum represents. What legal team is acting on its behalf in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The state enacts a policy, the high court supports it, then a foreign company contests it through an unaccountable private court, and a sitting MP acts on its behalf.
On the same day that the tribunal on the mining lawsuit was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are nothing of the case to date, but it appears probable that he’ll use the ISDS mechanism to fight the sanctions the UK enacted against him following the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, claiming $16bn: half that government’s yearly income. Among the legal team representing him there? a prominent lawyer, wife of the former British prime minister.
Trade specialists believe that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine urgently requires.
We were assured that these scenarios wouldn’t happen. Previously, a senior politician, promoting the biggest and most dangerous of all such treaties, stated: “The UK has signed investment treaty after trade deal and we have never seen a problem in the past.” An expert on this topic described critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “as corporations grasp the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by scepticism.
That threat has come to pass. In the current period, oil and gas and mining firms have initiated a unprecedented number of suits against nations rich and poor, contesting – like the example of the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Companies have thus far won $114bn through ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP
A digital content strategist with a passion for newsletter curation and audience engagement, sharing insights from years in online media.
