🔗 Share this article

How do you understand our democratic process works? Maybe along the lines of this. We elect MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. The law is upheld by the courts. That's it. However, that was how it operated in the past. Those days are over.

The Emergence of Shadow Tribunals

In the modern era, foreign corporations, and the oligarchs who own them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes take place away from public scrutiny. Unlike our courts, these tribunals provide no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises operating from this country. They are open exclusively to corporations registered abroad.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

These sums are based not on real financial harm but funds the arbitrators conclude the company would perhaps have made. The government might be compelled to rescind the measure. It becomes deterred from enacting future policies along the same lines, for fear of being sued.

A System Spiralling Out of Control

Historically high figures of legal actions are being initiated, as firms take cues from each other, and hedge funds fund legal actions in exchange for a share of the awards. The outcome? National sovereignty and democratic governance are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the decisions made by parliaments is that this clause has been inserted – without democratic mandate, and often in an atmosphere of total confidentiality – into trade treaties.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the senior court. The judge found that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the questionable argument that the mine would have no impact on national carbon targets. The Labour government subsequently revoked the permission the Tories had granted. Now, this legal outcome is under threat by an foreign court accountable to exclusively the companies petitioning it.

During August, a company whose final controllers are located in the tax haven initiated proceedings versus the UK government. The previous week a tribunal in the US capital was established to consider the case.

This firm is litigating against the UK for the money it could have earned if the mine had received permission to commence operations. Citizens have little idea how much this could amount to. What legal team is serving as its counsel against the British government? A sitting MP, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The state makes a decision, the high court upholds it, then a overseas corporation challenges it through an undemocratic private court, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coal mine dispute was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it is highly possible that he may employ the arbitration process to contest the sanctions the UK imposed on him subsequent to the Russian aggression. He has previously started suing another European state with similar intent, claiming a colossal sum: an amount representing half nation's yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as security for its financial support package is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations may be obstructing the finance Ukraine urgently requires.

False Assurances and Mounting Costs

The public was told that such things could not occur. In 2014, a government leader, promoting the most significant and hazardous of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this matter labelled campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies grasp the influence bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were met with general mockery.

That warning has come to pass. Recently, fossil fuel and mining firms have filed a unprecedented number of suits against nations rich and poor, contesting – similar to the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Firms have to date won vast sums by using ISDS, of which energy giants have obtained the majority. That equates to the combined GDP