🔗 Share this article

What is your understand our democratic process functions? Maybe similar to this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. Statutes is upheld by the courts. Simple as that. Well, that used to be how it used to work. Those days are over.

The Advent of Shadow Tribunals

Nowadays, international firms, along with the billionaires that control them, have the power to sue governments for the policies they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are held away from public scrutiny. Unlike our courts, these panels grant no right of appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, or even businesses based in this country. They are open only to businesses operating from foreign soil.

When a secret court finds that a government measure might diminish the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

These sums constitute not actual losses but funds the panel members determine the company would perhaps have made. The state may have to abandon its policy. It is hesitant to introducing similar legislation along the same lines, due to the risk of being sued.

A Process Growing Exponentially

Historically high figures of legal actions are being filed, as corporations learn from each other, and hedge funds finance suits in exchange for a cut of the awards. The result? National sovereignty and democratic governance are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the decisions enacted by legislatures is that this provision has been incorporated – without public consent, and frequently under a climate of total confidentiality – within bilateral investment treaties.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the High Court. The presiding officer determined that schemes to open the first new deep coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine could have no consequence on climate commitments. The incoming administration later cancelled the licence the previous administration had approved. Now, this legal outcome faces being overturned by an secret arbitration panel answering to exclusively the corporations bringing the case.

Last August, a firm whose ultimate owners reside in the Cayman Islands filed a lawsuit versus the UK government. Recently a dispute settlement body in the US capital was convened to adjudicate on it.

This firm is litigating against the UK for the money it could have earned if the mine had received permission to commence operations. The public has no clear indication how much this might be. What legal team is serving as its counsel challenging the state? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government passes a law, the domestic court upholds it, then a international entity disputes it through an secretive arbitration panel, and a sitting MP represents its behalf.

The Russian Lawsuit

On the same day that the court on the coal mine dispute was convened, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it is highly possible that he may employ the tribunal to fight the penalties the UK levied against him following the war in Ukraine. He has previously started suing another European state for this reason, seeking a colossal sum: an amount representing half state's yearly budget. Included in the lawyers representing him there? a prominent lawyer, wife of the ex-UK leader.

Legal experts argue that the EU’s hesitation in using frozen Russian assets as security for its loan to Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This unprecedented, undemocratic power over democratic administrations might be preventing the finance Ukraine desperately needs.

Misleading Claims and Growing Risks

We were assured that these events wouldn’t happen. Previously, a government leader, promoting the biggest and most dangerous of all these agreements, declared: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this topic described activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries needed to fear ISDS claims. Predictions that “when companies start to realise the power bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were met with scepticism.

That prediction is now a reality. This year, energy and resource corporations have initiated a historic level of suits against nations rich and poor, contesting – similar to the Whitehaven project – government attempts to halt global warming. Corporations have thus far won $114bn by using ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP