🔗 Share this article

How do you reckon our democratic process works? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Well, that was how it operated in the past. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, international firms, along with the billionaires that control them, have the power to sue nation states for the laws they pass, at offshore tribunals staffed by business advocates. Such disputes are conducted behind closed doors. In contrast to domestic courts, these tribunals allow no opportunity to appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even companies headquartered in this country. Access is granted only to businesses based overseas.

When a secret court finds that a legislative action could harm the corporation’s projected profits, it can award compensation of hundreds of millions, running into billions.

These sums constitute not actual losses but compensation the panel members decide the company would perhaps have made. The state could be forced to abandon its policy. It will be deterred from enacting future policies of a similar nature, for fear of being sued.

A Mechanism Running Rampant

Historically high figures of disputes are being brought, as firms learn from each other, and private equity finance suits for a share of a portion of the awards. The consequence? National sovereignty and democracy are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the rulings made by elected bodies is that this clause has been written – without public consent, and often in conditions of total confidentiality – within bilateral investment treaties.

A Concrete Instance: The Whitehaven Coalmine

Last year, a conservation group achieved a major legal triumph at the High Court. The presiding officer found that schemes to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had zero effect on national carbon targets. The incoming administration subsequently revoked the licence the Tories had issued. Now, this victory could be compromised by an secret arbitration panel accountable to only the entities petitioning it.

During August, a company whose beneficial owners reside in the offshore financial centre lodged a claim against the UK government. The previous week a tribunal in the US capital was set up to hear it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have no clear indication how much this could amount to. Who is acting on its behalf challenging the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The administration enacts a policy, the high court validates it, then a international entity disputes it through an unaccountable private court, and a sitting MP represents its behalf.

The Russian Challenge

Simultaneously that the panel on the mining lawsuit was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case so far, but it is highly possible that he’ll use the ISDS mechanism to fight the penalties the UK imposed on him following the Russian aggression. He has initiated proceedings against Luxembourg on these grounds, demanding sixteen billion dollars: equivalent to half of state's yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in utilising seized state funds as security for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over elected governments may be obstructing the funds Ukraine desperately needs.

False Assurances and Growing Costs

Politicians promised that these scenarios were not possible. Years ago, a former prime minister, advocating for the biggest and most dangerous of all such treaties, stated: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” An expert on this issue described activists of “alarmism … the fact 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 start to realise the power they now possess, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with general mockery.

That prediction has now materialised. Recently, oil and gas and resource corporations have initiated a record number of suits against nations across the economic spectrum, challenging – like the example of the UK mine – state efforts to stop climate breakdown. Firms have thus far won $114bn through ISDS, of which energy giants have obtained the majority. That represents the combined GDP