🔗 Share this article

How do you reckon our democratic process operates? It could be something like this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. Well, that was how it once functioned. Not anymore.

The Advent of Shadow Courts

Nowadays, international firms, along with the oligarchs that control them, have the power to sue elected administrations for the policies they pass, at offshore tribunals staffed by business advocates. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies grant no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises based in this country. They are open only to corporations based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s expected profits, it may order damages of hundreds of millions of pounds, potentially billions.

These awards are based not on real financial harm but compensation the panel members determine the company might otherwise have made. The state could be forced to drop the legislation. It becomes deterred from passing future laws of a similar nature, worried about facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being brought, as corporations take cues from each other, and hedge funds fund legal actions in return for a portion of the takings. The outcome? National sovereignty and popular rule are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices enacted by parliaments is that this clause has been inserted – absent public approval, and typically amid a climate of extreme secrecy – into trade treaties.

A Concrete Instance: The UK Coalmine

A year ago, a conservation group won a great victory at the high court. The judge determined that proposals to excavate the first deep coalmine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine could have no consequence on national carbon targets. The Labour government later cancelled the licence the Tories had approved. Today, this victory is under threat by an offshore tribunal accountable to only the companies filing the suit.

During August, a firm whose ultimate owners are located in the offshore financial centre filed a lawsuit challenging the UK government. Recently a dispute settlement body in Washington DC was established to consider the case.

The company is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. We have little idea how much this could amount to. What legal team is acting on its behalf challenging the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The government makes a decision, the high court validates it, then a foreign company disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the mining lawsuit was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it appears probable that he will utilise the arbitration process to fight the penalties the UK imposed on him subsequent to the Russian aggression. He has previously started suing a small nation for this reason, seeking sixteen billion dollars: equivalent to half of state's annual revenue. Among the lawyers acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

Legal experts argue that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

False Assurances and Growing Costs

The public was told that these scenarios could not occur. Previously, a government leader, advocating for the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to investment treaty upon trade deal and there has not been a issue in the past.” An expert on this issue described activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations had to worry about ISDS claims. Warnings that “once firms grasp the power they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That warning has come to pass. This year, oil and gas and extraction companies have filed a historic level of cases against nations rich and poor, opposing – similar to the UK mine – official measures to stop global warming. Firms have thus far won vast sums by using ISDS, of which energy giants have obtained the majority. That equates to the combined GDP