🔗 Share this article

Can you understand our democratic process functions? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. The law is upheld by the courts. That's it. However, that was how it once functioned. No longer.

The Emergence of Shadow Courts

Nowadays, foreign corporations, or the oligarchs who own them, can sue nation states for the laws they pass, at secret arbitration panels composed of business advocates. The cases take place in secret. Differing from national judiciaries, these tribunals provide no right of appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even enterprises headquartered in this country. The door is open exclusively to businesses registered abroad.

Should an arbitration panel finds that a government measure could harm the corporation’s projected profits, it can award damages of hundreds of millions of pounds, potentially billions.

These awards constitute not real financial harm but compensation the tribunal officials decide the company would perhaps have made. The state might be compelled to rescind the measure. It becomes deterred from introducing similar legislation along the same lines, worried about facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as companies take cues from each other, and private equity bankroll lawsuits in return for a cut of the takings. The result? Democratic sovereignty and democratic governance are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the decisions enacted by legislatures is that this clause has been inserted – without public consent, and typically amid conditions of extreme secrecy – within international trade agreements.

A Specific Example: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the senior court. The justice found that proposals to dig the first new deep coal mine in the UK for a generation, in northwest England, were found to be wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have had zero effect on climate commitments. The incoming administration subsequently revoked the permission the Tories had approved. Today, this success faces being overturned by an offshore tribunal reporting to exclusively the entities filing the suit.

During August, a corporate entity whose ultimate owners reside in the tax haven initiated proceedings challenging the UK government. Last week a dispute settlement body in the United States was set up to consider the case.

The company is litigating against the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have little idea how much this could amount to. Which individual is acting on its behalf challenging the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court upholds it, then a foreign company contests it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the panel on the mining lawsuit was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows little of the case at present, but it appears probable that he may employ the arbitration process to challenge the penalties the UK imposed on him after the invasion of Ukraine. He has already filed a claim against Luxembourg with similar intent, claiming sixteen billion dollars: an amount representing half nation's yearly income. Among the counsel representing him there? the wife of a former prime minister, married to the former British prime minister.

Trade specialists contend that the EU’s procrastination in leveraging immobilised state funds as security for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine critically depends on.

False Assurances and Mounting Threats

The public was told that such things were not possible. Years ago, a government leader, championing the biggest and most dangerous of all such treaties, stated: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An adviser on this matter accused campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “as corporations grasp the influence they now possess, they will shift their focus from the poorer states to the developed economies” were dismissed with scepticism.

That prediction is now a reality. In the current period, oil and gas and extraction companies have initiated a record number of suits against nations across the economic spectrum, contesting – like the example of the Whitehaven project – official measures to halt environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP