🔗 Share this article

How do you reckon our democratic process works? Maybe along the lines of this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that was how it once functioned. No longer.

The Rise of Shadow Arbitration Panels

Today, overseas companies, or the oligarchs that control them, can sue governments for the regulations they pass, at private courts composed of business advocates. Such disputes take place behind closed doors. In contrast to domestic courts, these tribunals allow no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies operating from this country. They are open only to corporations based overseas.

When a secret court finds that a government measure might diminish the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, even billions.

These sums are based not on actual losses but money the tribunal officials conclude the company could potentially have made. The government may have to abandon its policy. It becomes hesitant to enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being brought, as companies learn from each other, and private equity finance suits for a share of a cut of the awards. The consequence? Sovereignty and popular rule are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the rulings taken by legislatures is that this stipulation has been incorporated – absent public approval, and often in conditions of extreme secrecy – inside bilateral investment treaties.

A Concrete Instance: The UK Coalmine

Last year, a conservation group won a great victory at the high court. The justice ruled that proposals to dig the first major coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine would have had zero effect on climate commitments. The incoming administration then withdrew the permission the former government had issued. Currently, this legal outcome could be compromised by an secret arbitration panel accountable to no one but the corporations petitioning it.

In August, a company whose final controllers reside in the tax haven lodged a claim against the UK government. Recently a tribunal in Washington DC was convened to adjudicate on it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to commence operations. The public has no idea how much this sum represents. What legal team is representing it in opposition to the UK administration? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the domestic court supports it, then a foreign company contests it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

The Russian Challenge

On the same day that the court on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case at present, but it appears probable that he will utilise the tribunal to challenge the penalties the UK levied against him subsequent to the war in Ukraine. He has previously initiated proceedings against Luxembourg on these grounds, demanding sixteen billion dollars: an amount representing half state's annual revenue. Included in the counsel on his side? the wife of a former prime minister, married to the former British prime minister.

Legal experts argue that the EU’s delay in using frozen oligarchs' funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations could be blocking the funds Ukraine critically depends on.

Misleading Claims and Growing Costs

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, championing the most significant and hazardous of all investment pacts, told us: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this matter accused campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “when companies grasp the authority bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were met with general mockery.

That warning is now a reality. This year, fossil fuel and mining firms have initiated a record number of suits against nations across the economic spectrum, opposing – similar to the UK mine – government attempts to prevent environmental catastrophe. Firms have so far won vast sums by using ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP