How do you understand our democratic process operates? Perhaps similar to this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. The law is maintained by the courts. That's it. Well, that was how it once functioned. Those days are over.
Today, overseas companies, and the wealthy individuals who own them, have the power to sue elected administrations for the policies they pass, at private courts composed of corporate lawyers. Such disputes are conducted in secret. Unlike our courts, these tribunals allow no right of appeal or legal review. You or I are barred from bringing a case to them, nor can our government, or even companies operating from this country. The door is open only to businesses based overseas.
When a secret court determines that a law or policy may compromise the corporation’s projected profits, it may order compensation of hundreds of millions of pounds, running into billions.
These sums are based not on real financial harm but money the panel members conclude the company might otherwise have made. The government may have to drop the legislation. It becomes hesitant to introducing similar legislation in that area, for fear of being sued.
Historically high figures of cases are being brought, as firms observe each other, and investment funds finance suits in return for a portion of the takings. The consequence? National sovereignty and democracy are now unaffordable.
The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the decisions made by legislatures is that this clause has been inserted – absent public approval, and typically amid conditions of extreme secrecy – inside international trade agreements.
Twelve months ago, environmental campaigners secured a significant win at the high court. The justice ruled that proposals to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine could have no consequence on climate commitments. The new government then withdrew the permission the former government had issued. Now, this success could be compromised by an secret arbitration panel accountable to no one but the companies bringing the case.
In August, a corporate entity whose ultimate owners are based in the tax haven initiated proceedings versus the UK government. Last week a arbitration panel in Washington DC was convened to hear it.
This firm is seeking compensation from the UK for the profits it might have made if the mine had been permitted to commence operations. The public has little idea how much this might be. Who is acting on its behalf in opposition to the state? A member of parliament, and former attorney-general in the Conservative government, that great patriot Geoffrey Cox. The state makes a decision, the high court upholds it, then a foreign company challenges it through an unaccountable private court, and a sitting MP acts on its behalf.
On the same day that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case at present, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already filed a claim against another European state for this reason, demanding sixteen billion dollars: an amount representing half government’s annual revenue. Part of the legal team representing him there? Cherie Blair, married to the former British prime minister.
International law scholars believe that the EU’s procrastination in using frozen oligarchs' funds as security for its financial support package stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine desperately needs.
We were assured that these scenarios could not occur. Previously, a former prime minister, championing the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade agreement upon trade deal and there has never been a case in the past.” A consultant on this matter labelled critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about ISDS claims. Warnings that “once firms begin to understand the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with widespread derision.
That warning has come to pass. In the current period, energy and mining firms have initiated a historic level of cases against nations rich and poor, contesting – similar to the Whitehaven project – official measures to halt global warming. Firms have so far won $114bn by using ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP
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