🔗 Share this article

Can you perceive our democratic process functions? It could be something like this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills become law. Statutes is maintained by the courts. That's it. Well, that was how it once functioned. No longer.

The Advent of Shadow Courts

In the modern era, overseas companies, along with the oligarchs that control them, are able to litigate against nation states for the laws they pass, at secret arbitration panels composed of business advocates. These proceedings take place away from public scrutiny. In contrast to domestic courts, these bodies allow no right of appeal or judicial review. The general public cannot take a case to them, just as our government, or even companies headquartered in this country. They are open only to businesses registered abroad.

If a tribunal rules that a legislative action may compromise the corporation’s expected profits, it can award damages of hundreds of millions of pounds, even billions.

These awards are based not on tangible damages but funds the tribunal officials determine the company might otherwise have made. The state might be compelled to abandon its policy. It becomes deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A Process Running Rampant

Historically high figures of legal actions are being brought, as firms take cues from each other, and private equity fund legal actions for a share of a share of the settlements. The result? Sovereignty and democracy are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices taken by elected bodies is that this stipulation has been incorporated – without public consent, and typically amid a climate of profound opacity – within international trade agreements.

A Real-World Example: The UK Coal Mine

Last year, a conservation group achieved a major legal triumph at the senior court. The justice determined that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The new government then withdrew the consent the Tories had approved. Currently, this success is under threat by an foreign court accountable to no one but the corporations bringing the case.

Last August, a corporate entity whose final controllers are located in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a dispute settlement body in the US capital was set up to adjudicate on it.

This firm is suing the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have no idea how much this sum represents. What legal team is representing it in opposition to the UK administration? A sitting MP, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary supports it, then a international entity disputes it through an secretive arbitration panel, and a elected official works for its behalf.

A Sanctions Case

On the same day that the tribunal on the coalmine case was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are little of the case at present, but it seems likely that he will utilise the ISDS mechanism to challenge the penalties the UK enacted against him after the invasion of Ukraine. He has filed a claim against a small nation for this reason, seeking sixteen billion dollars: equivalent to half of government’s yearly budget. Among the counsel representing him there? a prominent lawyer, spouse of the previous PM.

Legal experts believe that the EU’s delay in using frozen oligarchs' funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine urgently requires.

Empty Promises and Growing Risks

Politicians promised that these events could not occur. Previously, a government leader, championing the biggest and most dangerous of all such treaties, told us: “We’ve signed trade deal upon trade deal and there has not been a issue in the past.” An expert on this matter described campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “as corporations start to realise the influence bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That warning is now a reality. Recently, energy and extraction companies have initiated a unprecedented number of cases against nations rich and poor, opposing – like the example of the Whitehaven project – official measures to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP