What is your reckon our system of government works? It could be similar to this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills become law. Legislation are enforced by the courts. Simple as that. However, that’s how it once functioned. No longer.
In the modern era, overseas companies, along with the wealthy individuals behind them, can sue governments for the policies they pass, at offshore tribunals staffed by corporate lawyers. The cases take place in secret. Unlike our courts, these panels grant no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. The door is open exclusively to corporations registered abroad.
When a secret court rules that a legislative action may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, even billions.
These awards are based not on real financial harm but funds the panel members decide the company might otherwise have made. The government might be compelled to rescind the measure. It will be deterred from introducing similar legislation in that area, for fear of facing litigation.
Unprecedented levels of disputes are being brought, as corporations take cues from each other, and hedge funds bankroll lawsuits in exchange for a portion of the takings. The result? Democratic sovereignty and democracy are becoming too costly.
This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the choices enacted by parliaments is that this provision has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – inside trade treaties.
Twelve months ago, a conservation group achieved a major legal triumph at the senior court. The judge ruled that schemes to excavate the first major coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The incoming administration then withdrew the licence the previous administration had approved. Now, this victory is under threat by an secret arbitration panel answering to exclusively the entities petitioning it.
Last August, a corporate entity whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. The previous week a dispute settlement body in the US capital was set up to adjudicate on it.
The claimant is litigating against the UK for the revenue it might have made if the mine had been allowed to go ahead. We have no idea how much this might be. Which individual is serving as its counsel in opposition to the state? An elected representative, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a international entity challenges it through an secretive offshore tribunal, and a elected official represents its behalf.
Simultaneously that the panel on the coalmine case was established, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he’ll use the tribunal to fight the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has started suing Luxembourg on these grounds, seeking sixteen billion dollars: equivalent to half of government’s annual revenue. Part of the counsel on his side? Cherie Blair, spouse of the former British prime minister.
International law scholars believe that the EU’s delay in utilising seized oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments could be blocking the finance Ukraine critically depends on.
We were assured that such things could not occur. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, stated: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An adviser on this matter labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by these lawsuits. Warnings that “once firms begin to understand the power bestowed upon them, they will turn their attention from the weak nations to the developed economies” were dismissed with widespread derision.
That threat has now materialised. This year, oil and gas and mining firms have initiated a record number of claims against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – official measures to halt global warming. Companies have so far won $114bn through ISDS, of which energy giants have obtained the majority. That represents the combined GDP
Astrophysicist and space technology consultant with 15 years of experience in lunar mission planning and research.
