🔗 Share this article

How do you reckon our democratic process operates? Maybe similar to this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. The law is maintained by the courts. That's it. Well, that’s how it used to work. Those days are over.

The Rise of Secret Tribunals

Today, foreign corporations, or the billionaires behind them, have the power to sue elected administrations for the regulations they pass, at private courts made up of corporate lawyers. These proceedings take place in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. The door is open only to entities based overseas.

When a secret court determines that a law or policy could harm the corporation’s anticipated profits, it can award damages of vast sums, running into billions.

These awards represent not real financial harm but compensation the arbitrators conclude the company would perhaps have made. The government may have to drop the legislation. It will be discouraged from enacting future policies in that area, for fear of facing litigation.

A System Spiralling Out of Control

Historically high figures of cases are being initiated, as companies learn from each other, and hedge funds fund legal actions in return for a cut of the settlements. The outcome? National sovereignty and democracy are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the decisions made by parliaments is that this provision has been written – without democratic mandate, and often in an atmosphere of total confidentiality – within bilateral investment treaties.

A Specific Case: The Cumbrian Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The justice found that plans to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had no impact on our carbon budgets. The Labour government then withdrew the licence the former government had issued. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to exclusively the entities filing the suit.

During August, a company whose beneficial owners are based in the Cayman Islands filed a lawsuit challenging the UK government. Last week a arbitration panel in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. Which individual is representing it against the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The government passes a law, the national judiciary validates it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Case

Simultaneously that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case so far, but it appears probable that he’ll use the tribunal to fight the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg for this reason, seeking sixteen billion dollars: equivalent to half of state's yearly budget. Part of the counsel acting for him in that case? Cherie Blair, wife of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in using frozen state funds as security for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

Misleading Claims and Mounting Risks

The public was told that these scenarios were not possible. In 2014, a former prime minister, championing the most significant and hazardous of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and there has never been a case in the past.” An expert on this topic described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by such legal actions. Warnings that “once firms begin to understand the authority bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That prediction has now materialised. In the current period, oil and gas and extraction companies have filed a record number of suits against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to stop environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP