Can you understand our democratic process works? Perhaps similar to this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills become law. The law is upheld by the courts. Simple as that. However, that’s how it once functioned. Those days are over.
Today, overseas companies, and the oligarchs who own them, are able to litigate against nation states for the policies they pass, at secret arbitration panels made up of commercial attorneys. Such disputes take place behind closed doors. Differing from national judiciaries, these tribunals provide no right of appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, or even enterprises based in this country. They are open only to entities operating from foreign soil.
Should an arbitration panel determines that a law or policy may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, even billions.
This compensation represent not tangible damages but compensation the panel members decide the company might otherwise have made. The state could be forced to abandon its policy. It will be discouraged from enacting future policies in that area, for fear of facing litigation.
Record numbers of cases are being brought, as firms take cues from each other, and private equity finance suits in return for a share of the takings. The consequence? National sovereignty and democratic governance are becoming too costly.
The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the decisions taken by elected bodies is that this provision has been incorporated – without public consent, and typically amid conditions of profound opacity – within bilateral investment treaties.
Last year, a conservation group won a great victory at the High Court. The justice ruled that plans to dig the first major coal mine in the UK for three decades, in northwest England, were found to be wrongly permitted by the previous government, which had endorsed the questionable argument that the mine could have zero effect on our carbon budgets. The new government later cancelled the licence the Tories had granted. Currently, this victory faces being overturned by an offshore tribunal accountable to exclusively the companies bringing the case.
Last August, a firm whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. The previous week a dispute settlement body in Washington DC was established to adjudicate on it.
The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to proceed. The public has little idea how much this sum represents. Which individual is serving as its counsel against the British government? An elected representative, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a overseas corporation disputes it through an secretive private court, and a member of our parliament represents its behalf.
Simultaneously that the tribunal on the coalmine case was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case so far, but it seems likely that he will utilise the arbitration process to contest the sanctions the UK levied against him subsequent to the Russian aggression. He has initiated proceedings against a small nation for this reason, demanding a colossal sum: an amount representing half nation's yearly budget. Part of the lawyers representing him there? the wife of a former prime minister, wife of the previous PM.
International law scholars argue that the EU’s delay in leveraging immobilised state funds as guarantee for its financial support package is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over democratic administrations might be preventing the finance Ukraine critically depends on.
The public was told that these events could not occur. Years ago, a former prime minister, promoting the most significant and hazardous of all investment pacts, told us: “Britain has agreed to investment treaty upon trade deal and we have never seen a issue in the past.” An expert on this issue labelled activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about these lawsuits. Warnings that “when companies grasp the authority they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were dismissed with general mockery.
That prediction has come to pass. Recently, fossil fuel and extraction companies have lodged a unprecedented number of claims against nations rich and poor, challenging – as in the case of the UK mine – official measures to halt global warming. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP
A seasoned financial analyst with over a decade of experience in global markets and trading strategies.
News