🔗 Share this article

Can you perceive our democratic process operates? Perhaps along the lines of this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Statutes is maintained by the courts. End of story. However, that’s how it operated in the past. Those days are over.

The Rise of Shadow Tribunals

Today, overseas companies, or the oligarchs that control them, have the power to sue governments for the laws they pass, at secret arbitration panels staffed by business advocates. These proceedings are conducted behind closed doors. Differing from national judiciaries, these tribunals provide no opportunity to appeal or judicial review. You or I cannot take a case to them, nor can our government, or even businesses headquartered in this country. They are open exclusively to entities registered abroad.

Should an arbitration panel determines that a legislative action might diminish the corporation’s expected profits, it can award financial penalties of vast sums, even billions.

This compensation constitute not tangible damages but money the arbitrators conclude the company could potentially have made. The administration could be forced to abandon its policy. It is deterred from passing future laws in that area, for fear of being sued.

A Process Running Rampant

Unprecedented levels of legal actions are being brought, as corporations take cues from each other, and private equity fund legal actions in return for a share of the awards. The outcome? Sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the decisions taken by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid conditions of total confidentiality – inside trade treaties.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, a conservation group secured a significant win at the high court. The justice determined that plans to excavate the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration later cancelled the consent the previous administration had issued. Currently, this legal outcome faces being overturned by an secret arbitration panel accountable to no one but the companies petitioning it.

Last August, a company whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. The previous week a arbitration panel in the United States was established to hear it.

The company is suing the UK for the profits it might have made if the mine had received permission to commence operations. Citizens have no clear indication how much this sum represents. Who is serving as its counsel against the state? An elected representative, and former attorney-general in the previous government, the noted patriot Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a foreign company disputes it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Concurrently that the panel on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case so far, but it seems likely that he’ll use the tribunal to fight the penalties the UK imposed on him after the war in Ukraine. He has initiated proceedings against Luxembourg for this reason, seeking sixteen billion dollars: an amount representing half nation's yearly budget. Part of the legal team acting for him in that case? Cherie Blair, married to the ex-UK leader.

Trade specialists argue that the EU’s procrastination in using frozen Russian assets as guarantee for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations could be blocking the finance Ukraine desperately needs.

False Assurances and Mounting Costs

Politicians promised that these events were not possible. Years ago, a former prime minister, advocating for the biggest and most dangerous of all these agreements, told us: “Britain has agreed to trade deal after trade deal and there has never been a issue in the past.” An adviser on this matter accused activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations had to worry about ISDS claims. Predictions that “when companies begin to understand the power bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were greeted by general mockery.

That warning is now a reality. Recently, fossil fuel and mining firms have filed a record number of claims against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – official measures to halt global warming. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP