🔗 Share this article

What is your perceive our democratic process operates? It could be something like this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills become law. The law is upheld by the courts. Simple as that. However, that was how it used to work. No longer.

The Rise of Shadow Tribunals

In the modern era, overseas companies, or the wealthy individuals that control them, can sue elected administrations for the laws they pass, at private courts composed of corporate lawyers. Such disputes take place behind closed doors. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, including companies based in this country. They are open only to entities registered abroad.

If a tribunal finds that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, potentially billions.

This compensation constitute not actual losses but money the arbitrators determine the company might otherwise have made. The government might be compelled to abandon its policy. It will be discouraged from introducing similar legislation in that area, due to the risk of facing litigation.

A System Growing Exponentially

Historically high figures of legal actions are being initiated, as firms observe each other, and investment funds fund legal actions for a share of a share of the awards. The consequence? National sovereignty and popular rule are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the decisions made by parliaments is that this clause has been inserted – without democratic mandate, and frequently under conditions of extreme secrecy – into bilateral investment treaties.

A Specific Case: The Cumbrian Coal Mine

Last year, environmental campaigners secured a significant win at the senior court. The presiding officer determined that proposals to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine could have zero effect on climate commitments. The new government then withdrew the consent the Tories had granted. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to exclusively the companies filing the suit.

In August, a company whose final controllers are based in the Cayman Islands initiated proceedings against the UK government. Recently a tribunal in the US capital was established to hear it.

The company is seeking compensation from the UK for the money it might have made if the mine had been permitted to go ahead. The public has little idea how much this might be. Which individual is representing it against the UK administration? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the domestic court validates it, then a international entity disputes it through an secretive offshore tribunal, and a elected official acts on its behalf.

A Sanctions Lawsuit

Concurrently that the court on the coalmine case was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case so far, but it appears probable that he’ll use the ISDS mechanism to contest the restrictions the UK enacted against him subsequent to the war in Ukraine. He has previously initiated proceedings against a small nation for this reason, seeking a colossal sum: half that government’s yearly budget. Among the legal team on his side? a prominent lawyer, spouse of the ex-UK leader.

Legal experts argue that the EU’s delay in using frozen Russian assets as security for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over sovereign states may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

The public was told that such things were not possible. Previously, a senior politician, advocating for the largest and riskiest of all these agreements, declared: “Britain has agreed to trade deal after trade deal and there has never been a case in the past.” An adviser on this issue accused campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states needed to fear these lawsuits. Predictions that “as corporations grasp the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by scepticism.

That warning is now a reality. In the current period, oil and gas and extraction companies have filed a historic level of claims against nations rich and poor, opposing – similar to the Cumbrian coalmine – official measures to halt global warming. Companies have so far won $114bn by using ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP