🔗 Share this article

Can you perceive our democratic process operates? It could be something like this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills become law. Statutes is maintained by the courts. End of story. Well, that’s how it once functioned. No longer.

The Emergence of Shadow Courts

In the modern era, foreign corporations, or the oligarchs behind them, are able to litigate against governments for the laws they pass, at private courts made up of business advocates. These proceedings take place behind closed doors. Unlike our courts, these panels allow no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises based in this country. The door is open solely for corporations registered abroad.

If a tribunal rules that a government measure may compromise the corporation’s projected profits, it has the power to grant damages of vast sums, potentially billions.

These awards represent not tangible damages but funds the tribunal officials conclude the company would perhaps have made. The government might be compelled to drop the legislation. It will be discouraged from passing future laws along the same lines, worried about being sued.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being initiated, as corporations observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the awards. The result? National sovereignty and democracy are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can supersede national legislation and the choices taken by legislatures is that this provision has been written – without democratic mandate, and often in an atmosphere of extreme secrecy – within trade treaties.

A Specific Instance: The Cumbrian Coalmine

Last year, activists achieved a major legal triumph at the High Court. The presiding officer found that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration subsequently revoked the consent the Tories had issued. Currently, this legal outcome faces being overturned by an offshore tribunal answering to exclusively the corporations petitioning it.

Last August, a company whose final controllers are located in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in Washington DC was convened to adjudicate on it.

This firm is suing the UK for the profits it might have made if the mine had received permission to commence operations. The public has little idea how much this could amount to. What legal team is serving as its counsel challenging the state? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government 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

Simultaneously that the panel on the coalmine case was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know little of the case so far, but it is highly possible that he’ll use the arbitration process to challenge the restrictions the UK enacted against him subsequent to the Russian aggression. He has already started suing Luxembourg with similar intent, claiming a colossal sum: half that government’s yearly income. Part of the legal team on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s delay in utilising seized Russian assets as collateral for its financial support package is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over sovereign states could be blocking the funds Ukraine urgently requires.

Empty Promises and Mounting Costs

Politicians promised that these scenarios wouldn’t happen. In 2014, a government leader, promoting the biggest and most dangerous of all such treaties, declared: “We’ve signed trade deal upon trade deal and there has not been a problem in the past.” An expert on this topic described activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states needed to fear such legal actions. Warnings that “when companies grasp the influence they now possess, they will turn their attention from the poorer states to the developed economies” were greeted by scepticism.

That threat has now materialised. In the current period, fossil fuel and extraction companies have filed a record number of suits against nations both wealthy and developing, contesting – similar to the Whitehaven project – official measures to prevent climate breakdown. Corporations have to date won vast sums through ISDS, of which oil majors have secured $84bn. That represents the combined GDP