How do you understand our political system functions? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills become law. The law is maintained by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.
Nowadays, international firms, and the oligarchs that control them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are conducted behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, or even enterprises headquartered in this country. The door is open solely for businesses operating from foreign soil.
If a tribunal rules that a law or policy might diminish the corporation’s expected profits, it can award damages of hundreds of millions, even billions.
This compensation represent not actual losses but compensation the tribunal officials conclude the company might otherwise have made. The government might be compelled to rescind the measure. It will be discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.
Historically high figures of cases are being initiated, as corporations observe each other, and investment funds fund legal actions for a share of a share of the awards. The consequence? Sovereignty and popular rule are turning into too costly.
The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the rulings enacted by legislatures is that this stipulation has been written – without public consent, and typically amid a climate of profound opacity – within trade treaties.
Last year, activists won a great victory at the high court. The justice ruled that schemes to open the first major coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the previous government, which had accepted the questionable argument that the mine could have no impact on climate commitments. The new government later cancelled the consent the Tories had issued. Today, this success faces being overturned by an offshore tribunal accountable to only the companies filing the suit.
During August, a corporate entity whose beneficial owners are located in the offshore financial centre lodged a claim versus the UK government. The previous week a tribunal in the US capital was set up to adjudicate on it.
This firm is litigating against the UK for the profits it could have earned if the mine had been allowed to proceed. Citizens have no idea how much this might be. Who is representing it challenging the British government? An elected representative, and previous senior legal advisor in the Conservative government, the noted patriot Geoffrey Cox. The administration passes a law, the high court upholds it, then a international entity contests it through an undemocratic arbitration panel, and a member of our parliament represents its behalf.
Concurrently that the tribunal on the coalmine case was established, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows little of the case so far, but it is highly possible that he’ll use the tribunal to challenge the penalties the UK enacted against him after the Russian aggression. He has already initiated proceedings against Luxembourg with similar intent, demanding sixteen billion dollars: an amount representing half government’s yearly budget. Part of the legal team on his side? the wife of a former prime minister, spouse of the ex-UK leader.
International law scholars contend that the EU’s delay in using frozen oligarchs' funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine desperately needs.
The public was told that such things could not occur. In 2014, a former prime minister, advocating for the most significant and hazardous of all such treaties, stated: “The UK has signed trade agreement upon trade deal and there has not been a problem in the past.” An adviser on this matter labelled campaigners of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about these lawsuits. Warnings that “once firms grasp the power they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were met with general mockery.
That prediction has come to pass. Recently, fossil fuel and extraction companies have initiated a unprecedented number of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – government attempts to prevent global warming. Firms have to date won $114bn via ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP
Elena Vance is a digital strategist and creative director with over a decade of experience in transforming brands through innovative design.