🔗 Share this article

Can you reckon our democratic process operates? Perhaps along the lines of this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Legislation is upheld by the courts. That's it. Yet, that used to be how it operated in the past. Those days are over.

The Rise of Secret Tribunals

Today, overseas companies, along with the oligarchs who own them, can sue nation states for the laws they pass, at private courts made up of commercial attorneys. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies grant no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies operating from this country. Access is granted exclusively to corporations based overseas.

Should an arbitration panel finds that a law or policy might diminish the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, even billions.

This compensation constitute not tangible damages but funds the tribunal officials determine the company might otherwise have made. The government might be compelled to abandon its policy. It will be discouraged from enacting future policies in that area, worried about facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being brought, as firms take cues from each other, and hedge funds finance suits in return for a share of the awards. The outcome? National sovereignty and democracy are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the rulings made by legislatures is that this provision has been written – without democratic mandate, and frequently under conditions of profound opacity – into international trade agreements.

A Specific Case: The Whitehaven Coalmine

Last year, a conservation group secured a significant win at the High Court. The judge determined that proposals to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have had no impact on national carbon targets. The Labour government then withdrew the permission the former government had issued. Today, this victory could be compromised by an offshore tribunal answering to exclusively the corporations petitioning it.

During August, a corporate entity whose ultimate owners are based in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in the United States was set up to hear it.

The claimant is suing the UK for the profits it would have generated if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. Which individual is representing it in opposition to the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The government makes a decision, the domestic court supports it, then a foreign company contests it through an secretive arbitration panel, and a elected official represents its behalf.

The Russian Challenge

Simultaneously that the court on the coalmine case was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK enacted against him subsequent to the war in Ukraine. He has started suing Luxembourg with similar intent, claiming a colossal sum: an amount representing half state's yearly income. Part of the counsel representing him there? Cherie Blair, wife of the ex-UK leader.

Legal experts contend that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its financial support package is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine urgently requires.

False Assurances and Growing Risks

We were assured that these events wouldn’t happen. In 2014, a government leader, promoting the largest and riskiest of all investment pacts, declared: “We’ve signed trade agreement after trade deal and there has never been a issue in the past.” A consultant on this topic accused critics of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Predictions that “once firms begin to understand the power bestowed upon them, they will shift their focus from the poorer states to the strong ones” were greeted by general mockery.

That warning is now a reality. This year, fossil fuel and resource corporations have filed a record number of cases against nations rich and poor, contesting – like the example of the Whitehaven project – state efforts to prevent climate breakdown. Companies have so far won $114bn by using ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP