🔗 Share this article

How do you understand our democratic process functions? Perhaps along the lines of this. We elect MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. That's it. Well, that was how it operated in the past. No longer.

The Advent of Shadow Courts

Today, overseas companies, or the billionaires behind them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels made up of corporate lawyers. The cases are conducted behind closed doors. Unlike our courts, these panels provide no avenue for appeal or judicial review. The general public cannot take a case to them, just as our government, or even enterprises operating from this country. They are open exclusively to entities operating from foreign soil.

If a tribunal determines that a law or policy may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

This compensation constitute not tangible damages but funds the arbitrators determine the company would perhaps have made. The government might be compelled to abandon its policy. It is hesitant to enacting future policies of a similar nature, worried about facing litigation.

A Process Running Rampant

Record numbers of disputes are being filed, as corporations observe each other, and private equity fund legal actions in return for a share of the takings. The outcome? Democratic sovereignty and popular rule are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the choices taken by elected bodies is that this clause has been incorporated – without democratic mandate, and typically amid a climate of profound opacity – within bilateral investment treaties.

A Concrete Case: The Whitehaven Coalmine

Twelve months ago, 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 three decades, in northwest England, were illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine could have no impact on our carbon budgets. The Labour government then withdrew the licence the Tories had granted. Now, this victory faces being overturned by an secret arbitration panel reporting to exclusively the corporations filing the suit.

In August, a firm whose ultimate owners are located in the Cayman Islands filed a lawsuit versus the UK government. The previous week a tribunal in the US capital was set up to hear it.

This firm is suing the UK for the money it could have earned if the mine had been allowed to go ahead. Citizens have no clear indication how much this might be. Who is acting on its behalf in opposition to the British government? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The administration passes a law, the high court upholds it, then a overseas corporation contests it through an unaccountable arbitration panel, and a elected official works for its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coalmine case was appointed, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he’ll use the ISDS mechanism to contest the penalties the UK levied against him after the Russian aggression. He has already initiated proceedings against Luxembourg for this reason, seeking a colossal sum: an amount representing half government’s yearly budget. Included in the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

Legal experts argue that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments might be preventing the funds Ukraine urgently requires.

Misleading Claims and Mounting Threats

The public was told that these scenarios could not occur. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, stated: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An adviser on this issue labelled activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “once firms begin to understand the influence they now possess, they will shift their focus from the poorer states to the wealthy nations” were dismissed with scepticism.

That prediction has now materialised. Recently, fossil fuel and resource corporations have filed a historic level of claims against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – official measures to prevent climate breakdown. Corporations have so far won vast sums through ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP