Can you understand our democratic process works? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. The law are enforced by the courts. End of story. Well, that used to be how it operated in the past. Not anymore.
Today, foreign corporations, and the wealthy individuals that control them, can sue governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are held behind closed doors. Differing from national judiciaries, these bodies provide no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, or even businesses operating from this country. Access is granted only to businesses registered abroad.
When a secret court determines that a legislative action may compromise the corporation’s projected profits, it can award compensation of hundreds of millions, running into billions.
These awards constitute not tangible damages but funds the arbitrators conclude the company would perhaps have made. The state may have to abandon its policy. It becomes discouraged from introducing similar legislation of a similar nature, due to the risk of incurring a lawsuit.
Historically high figures of disputes are being brought, as companies take cues from each other, and private equity fund legal actions for a share of a cut of the awards. The consequence? Democratic sovereignty and popular rule are turning into prohibitively expensive.
The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the choices taken by elected bodies is that this clause has been incorporated – absent public approval, and typically amid a climate of total confidentiality – inside bilateral investment treaties.
Last year, a conservation group won a great victory at the high court. The justice ruled that schemes to dig the first major coal mine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have zero effect on national carbon targets. The Labour government then withdrew the permission the previous administration had approved. Today, this legal outcome could be compromised by an offshore tribunal answering to exclusively the corporations petitioning it.
In August, a firm whose beneficial owners reside in the offshore financial centre filed a lawsuit challenging the UK government. Last week a tribunal in the US capital was convened to adjudicate on it.
This firm is suing the UK for the revenue it would have generated if the mine had been allowed to go ahead. Citizens have no clear indication how much this sum represents. Who is serving as its counsel against the British government? A sitting MP, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The government enacts a policy, the high court supports it, then a overseas corporation contests it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.
Simultaneously that the court on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case at present, but it appears probable that he may employ the arbitration process to challenge the penalties the UK imposed on him following the Russian aggression. He has already initiated proceedings against Luxembourg on these grounds, demanding $16bn: an amount representing half government’s yearly income. Part of the legal team on his side? the wife of a former prime minister, spouse of the ex-UK leader.
Trade specialists argue that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.
The public was told that such things wouldn’t happen. Previously, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to trade deal upon trade deal and there has not been a problem in the past.” An adviser on this topic accused critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries should be concerned by such legal actions. Predictions that “as corporations begin to understand the authority bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were dismissed with scepticism.
That warning is now a reality. This year, energy and extraction companies have filed a unprecedented number of suits against nations rich and poor, contesting – like the example of the Whitehaven project – government attempts to halt environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP
Elara is a passionate writer and photographer who shares insights on creativity and mindful living through engaging storytelling.
