🔗 Share this article

What is your reckon our democratic process functions? It could be something like this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. The law are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Not anymore.

The Advent of Shadow Tribunals

In the modern era, international firms, and the wealthy individuals behind them, have the power to sue elected administrations for the laws they pass, at offshore tribunals composed of commercial attorneys. Such disputes take place away from public scrutiny. Unlike our courts, these panels grant no right of appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, or even companies based in this country. The door is open only to businesses operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s expected profits, it can award financial penalties of hundreds of millions, even billions.

This compensation are based not on tangible damages but compensation the tribunal officials conclude the company might otherwise have made. The state could be forced to abandon its policy. It becomes deterred from enacting future policies along the same lines, due to the risk of facing litigation.

A System Growing Exponentially

Record numbers of disputes are being initiated, as firms learn from each other, and private equity finance suits in exchange for a share of the settlements. The consequence? Sovereignty and democratic governance are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can override a country's own laws and the rulings made by legislatures is that this stipulation has been incorporated – absent public approval, and often in a climate of profound opacity – within trade treaties.

A Real-World Instance: The UK Coal Mine

A year ago, activists won a great victory at the high court. The justice determined that schemes to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no consequence on national carbon targets. The new government then withdrew the licence the former government had granted. Currently, this success is under threat by an foreign court answering to only the corporations filing the suit.

During August, a company whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to proceed. The public has little idea how much this might be. Who is serving as its counsel challenging the British government? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The state enacts a policy, the high court supports it, then a overseas corporation contests it through an secretive private court, and a elected official acts on its behalf.

A Sanctions Case

Simultaneously that the panel on the coalmine case was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case to date, but it appears probable that he will utilise the ISDS mechanism to contest the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has previously started suing a small nation with similar intent, claiming a colossal sum: equivalent to half of government’s yearly income. Included in the lawyers acting for him in that case? Cherie Blair, married to the ex-UK leader.

Trade specialists believe that the EU’s procrastination in using frozen state funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over democratic administrations may be obstructing the money Ukraine desperately needs.

Misleading Claims and Growing Risks

The public was told that such things wouldn’t happen. Years ago, a government leader, championing the most significant and hazardous of all such treaties, stated: “We’ve signed trade deal after trade deal and we have never seen a problem in the past.” A consultant on this topic accused critics of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about ISDS claims. Warnings that “when companies start to realise the authority they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with widespread derision.

That threat has now materialised. This year, fossil fuel and mining firms have initiated a historic level of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Companies have thus far won vast sums through ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP