🔗 Share this article

Can you perceive our democratic process works? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills become law. Statutes are enforced by the courts. That's it. Yet, that’s how it once functioned. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, and the billionaires who own them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels composed of corporate lawyers. The cases are held behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, nor can our government, or even businesses based in this country. The door is open only to businesses registered abroad.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it can award financial penalties of vast sums, even billions.

This compensation constitute not real financial harm but funds the tribunal officials determine the company could potentially have made. The administration may have to abandon its policy. It is discouraged from passing future laws along the same lines, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of cases are being filed, as companies observe each other, and private equity fund legal actions in exchange for a share of the settlements. The outcome? Sovereignty and democracy are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the rulings made by legislatures is that this clause has been written – absent public approval, and typically amid a climate of total confidentiality – into international trade agreements.

A Real-World Case: The Whitehaven Coalmine

A year ago, environmental campaigners won a great victory at the senior court. The presiding officer determined that plans to dig the first deep coalmine in the UK for three decades, in northwest England, were found to be wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine could have no impact on climate commitments. The new government then withdrew the permission the Tories had granted. Currently, this success faces being overturned by an offshore tribunal reporting to no one but the entities petitioning it.

In August, a corporate entity whose ultimate owners reside in the Cayman Islands lodged a claim against the UK government. Recently a tribunal in Washington DC was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to go ahead. The public has little idea how much this sum represents. What legal team is acting on its behalf against the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The state makes a decision, the high court upholds it, then a international entity disputes it through an unaccountable private court, and a sitting MP represents its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the mining lawsuit was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case so far, but it seems likely that he’ll use the ISDS mechanism to challenge the sanctions the UK levied against him following the Russian aggression. He has already initiated proceedings against a small nation for this reason, demanding sixteen billion dollars: half that state's annual revenue. Part of the lawyers representing him there? a prominent lawyer, married to the ex-UK leader.

Trade specialists contend that the EU’s procrastination in using frozen oligarchs' funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

Misleading Claims and Mounting Threats

We were assured that these events could not occur. Years ago, a former prime minister, championing the biggest and most dangerous of all these agreements, declared: “Britain has agreed to trade deal after trade deal and we have never seen a case in the past.” An adviser on this issue labelled activists of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “when companies start to realise the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were greeted by scepticism.

That prediction has come to pass. This year, oil and gas and resource corporations have lodged a record number of suits against nations both wealthy and developing, contesting – as in the case of the UK mine – state efforts to stop global warming. Companies have so far won $114bn through ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP