🔗 Share this article

Can you perceive our democratic process operates? Maybe along the lines of this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills become law. The law is maintained by the courts. Simple as that. Well, that’s how it used to work. Those days are over.

The Advent of Secret Courts

In the modern era, international firms, or the billionaires who own them, are able to litigate against governments for the policies they pass, at secret arbitration panels made up of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these panels allow no opportunity to appeal or judicial review. You or I cannot take a case to them, nor can our government, including enterprises headquartered in this country. Access is granted exclusively to corporations registered abroad.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

This compensation represent not actual losses but money the panel members decide the company could potentially have made. The state may have to rescind the measure. It is discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of cases are being initiated, as companies learn from each other, and investment funds bankroll lawsuits for a share of a cut of the awards. The outcome? National sovereignty and popular rule are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the decisions enacted by elected bodies is that this provision has been written – absent public approval, and typically amid conditions of total confidentiality – into trade treaties.

A Real-World Example: The UK Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The justice ruled that schemes to excavate the first major coal mine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have zero effect on our carbon budgets. The incoming administration later cancelled the licence the Tories had granted. Today, this success is under threat by an secret arbitration panel accountable to exclusively the companies petitioning it.

During August, a corporate entity whose ultimate owners are located in the offshore financial centre initiated proceedings versus the UK government. The previous week a dispute settlement body in the US capital was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to commence operations. The public has little idea how much this sum represents. What legal team is serving as its counsel against the state? A sitting MP, and former attorney-general in the outgoing administration, the noted patriot the MP. The state makes a decision, the national judiciary upholds it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

A Sanctions Lawsuit

On the same day that the panel on the coalmine case was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are little of the case so far, but it is highly possible that he may employ the tribunal to fight the penalties the UK imposed on him subsequent to the Russian aggression. He has filed a claim against another European state on these grounds, claiming a colossal sum: an amount representing half nation's annual revenue. Included in the legal team representing him there? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s procrastination in using frozen Russian assets as security for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Escalating Risks

Politicians promised that these scenarios were not possible. Previously, a former prime minister, championing the biggest and most dangerous of all such treaties, stated: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this issue accused campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “as corporations grasp the influence they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were met with widespread derision.

That warning is now a reality. This year, oil and gas and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, contesting – like the example of the Whitehaven project – state efforts to halt global warming. Firms have to date won vast sums by using ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP