🔗 Share this article

Can you reckon our democratic process works? Perhaps something like this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills pass into law. Statutes is maintained by the courts. End of story. However, that’s how it used to work. Those days are over.

The Emergence of Secret Courts

Today, overseas companies, or the billionaires who own them, have the power to sue governments for the policies they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these bodies grant no right of appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies headquartered in this country. The door is open solely for businesses registered abroad.

If a tribunal finds that a government measure might diminish the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

These sums represent not tangible damages but funds the panel members conclude the company could potentially have made. The state could be forced to rescind the measure. It is deterred from enacting future policies in that area, worried about incurring a lawsuit.

A Process Running Rampant

Record numbers of legal actions are being filed, as firms observe each other, and private equity bankroll lawsuits for a share of a share of the settlements. The result? Sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the rulings taken by legislatures is that this clause has been inserted – absent public approval, and frequently under a climate of profound opacity – inside bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the High Court. The presiding officer ruled that plans to open the first new deep coal mine in the UK for a generation, in Cumbria, had been illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The new government subsequently revoked the permission the previous administration had approved. Now, this success faces being overturned by an secret arbitration panel accountable to no one but the companies petitioning it.

In August, a firm whose beneficial owners reside in the tax haven initiated proceedings versus the UK government. Last week a dispute settlement body in Washington DC was convened to adjudicate on it.

The company is suing the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has little idea how much this might be. Which individual is serving as its counsel in opposition to the UK administration? A member of parliament, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the national judiciary validates it, then a foreign company challenges it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the court on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case to date, but it appears probable that he may employ the tribunal to contest the penalties the UK enacted against him subsequent to the Russian aggression. He has already filed a claim against another European state with similar intent, demanding a colossal sum: an amount representing half state's yearly budget. Among the legal team on his side? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Growing Costs

The public was told that such things wouldn’t happen. In 2014, a government leader, championing the biggest and most dangerous of all investment pacts, declared: “The UK has signed trade deal upon trade deal and we have never seen a case in the past.” An expert on this issue labelled critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by such legal actions. Predictions that “once firms start to realise the influence they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were met with widespread derision.

That warning has come to pass. This year, fossil fuel and extraction companies have lodged a record number of cases against nations rich and poor, challenging – as in the case of the UK mine – state efforts to halt climate breakdown. Corporations have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP