🔗 Share this article

What is your understand our democratic process operates? Perhaps similar to this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, along with the billionaires that control them, are able to litigate against elected administrations for the laws they pass, at private courts staffed by commercial attorneys. These proceedings take place behind closed doors. Unlike our courts, these bodies allow no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, including businesses headquartered in this country. The door is open only to corporations registered abroad.

Should an arbitration panel rules that a law or policy might diminish the corporation’s projected profits, it may order financial penalties of vast sums, potentially billions.

These sums are based not on real financial harm but money the tribunal officials determine the company might otherwise have made. The government could be forced to drop the legislation. It will be discouraged from passing future laws in that area, for fear of incurring a lawsuit.

A Process Running Rampant

Record numbers of cases are being brought, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the takings. The result? Sovereignty and democracy are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the decisions made by legislatures is that this stipulation has been inserted – without public consent, and often in conditions of profound opacity – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coalmine

Last year, environmental campaigners won a great victory at the High Court. The justice found that plans to excavate the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine could have no consequence on national carbon targets. The incoming administration then withdrew the permission the previous administration had issued. Currently, this victory faces being overturned by an foreign court accountable to exclusively the entities filing the suit.

Last August, a corporate entity whose ultimate owners reside in the offshore financial centre lodged a claim challenging the UK government. The previous week a dispute settlement body in the US capital was set up to consider the case.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had received permission to proceed. We have little idea how much this might be. Who is representing it challenging the state? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the high court validates it, then a foreign company contests it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Case

Simultaneously that the court on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he will utilise the ISDS mechanism to contest the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has started suing a small nation on these grounds, demanding a colossal sum: half that government’s yearly budget. Among the lawyers acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in leveraging immobilised state funds as security for its financial support package arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over sovereign states may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

Politicians promised that such things could not occur. In 2014, a senior politician, promoting the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” A consultant on this matter described critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “once firms start to realise the influence they’ve been granted, they will shift their focus from the weak nations to the strong ones” were met with widespread derision.

That threat has come to pass. This year, energy and resource corporations have filed a unprecedented number of suits against nations across the economic spectrum, opposing – as in the case of the Cumbrian coalmine – government attempts to halt environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That represents the combined GDP