🔗 Share this article

Can you reckon our democratic process functions? Maybe similar to this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills pass into law. Legislation is upheld by the courts. End of story. Yet, that was how it operated in the past. Those days are over.

The Rise of Shadow Courts

In the modern era, foreign corporations, and the billionaires that control them, can sue governments for the laws they pass, at offshore tribunals staffed by business advocates. The cases are held in secret. Unlike our courts, these panels provide no avenue for appeal or judicial review. The general public cannot take a case to them, and neither can our government, or even enterprises operating from this country. The door is open only to entities based overseas.

Should an arbitration panel determines that a law or policy may compromise the corporation’s anticipated profits, it can award damages of vast sums, potentially billions.

This compensation are based not on actual losses but compensation the tribunal officials decide the company could potentially have made. The administration may have to abandon its policy. It is deterred from passing future laws in that area, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as firms observe each other, and private equity fund legal actions in exchange for a share of the settlements. The result? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the decisions enacted by elected bodies is that this stipulation has been written – without democratic mandate, and typically amid conditions of extreme secrecy – inside international trade agreements.

A Concrete Instance: The UK Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the high court. The presiding officer ruled that plans to open the first deep coalmine in the UK for three decades, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have zero effect on our carbon budgets. The new government then withdrew the permission the previous administration had issued. Now, this legal outcome faces being overturned by an offshore tribunal reporting to exclusively the companies bringing the case.

During August, a company whose beneficial owners are located in the Cayman Islands lodged a claim versus the UK government. Recently a arbitration panel in Washington DC was established to hear it.

The claimant is litigating against the UK for the revenue it might have made if the mine had been allowed to proceed. We have no idea how much this sum represents. What legal team is serving as its counsel challenging the British government? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a international entity challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coalmine case was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has already initiated proceedings against Luxembourg for this reason, claiming a colossal sum: equivalent to half of nation's annual revenue. Among the counsel acting for him in that case? a prominent lawyer, married to the former British prime minister.

Trade specialists argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its financial support package is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over elected governments may be obstructing the funds Ukraine desperately needs.

False Assurances and Escalating Risks

We were assured that such things were not possible. Previously, a senior politician, advocating for the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade agreement upon trade deal and we have never seen a problem in the past.” An adviser on this matter labelled campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies start to realise the authority they now possess, they will turn their attention from the vulnerable countries to the wealthy nations” were met with widespread derision.

That threat has now materialised. Recently, oil and gas and resource corporations have lodged a unprecedented number of suits against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Corporations have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP