🔗 Share this article

Can you perceive our democratic process works? Maybe similar to this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills become law. Statutes is maintained by the courts. Simple as that. Well, that was how it operated in the past. No longer.

The Advent of Secret Courts

Today, foreign corporations, along with the billionaires who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels made up of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even businesses operating from this country. Access is granted only to entities registered abroad.

Should an arbitration panel rules that a government measure may compromise the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

These awards are based not on tangible damages but funds the tribunal officials conclude the company could potentially have made. The administration may have to drop the legislation. It becomes deterred from passing future laws in that area, for fear of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of legal actions are being initiated, as companies learn from each other, and investment funds bankroll lawsuits in return for a portion of the takings. The result? Sovereignty and democratic governance are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the decisions enacted by parliaments is that this provision has been incorporated – without public consent, and typically amid an atmosphere of extreme secrecy – inside trade treaties.

A Concrete Instance: The UK Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The justice found that plans to open the first deep coalmine in the UK for three decades, in Cumbria, were illegally sanctioned by the previous government, which had endorsed the extraordinary assertion that the mine would have no impact on national carbon targets. The incoming administration subsequently revoked the licence the Tories had issued. Today, this success is under threat by an foreign court accountable to only the companies petitioning it.

During August, a corporate entity whose ultimate owners reside in the tax haven filed a lawsuit against the UK government. The previous week a arbitration panel in the US capital was set up to hear it.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to proceed. We have little idea how much this might be. Who is acting on its behalf against the UK administration? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The government passes a law, the high court upholds it, then a international entity challenges it through an unaccountable private court, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case so far, but it seems likely that he may employ the tribunal to challenge the sanctions the UK levied against him following the invasion of Ukraine. He has already filed a claim against another European state on these grounds, claiming sixteen billion dollars: equivalent to half of state's yearly income. Part of the counsel representing him there? the wife of a former prime minister, married to the previous PM.

Trade specialists argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Growing Threats

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, advocating for the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade deal upon trade deal and we have never seen a problem in the past.” A consultant on this topic accused activists of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about these lawsuits. Warnings that “once firms begin to understand the power bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were met with scepticism.

That prediction has come to pass. This year, energy and mining firms have initiated a historic level of cases against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – state efforts to stop environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP