🔗 Share this article

Can you understand our democratic process functions? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills become law. Legislation are enforced by the courts. That's it. Yet, that was how it once functioned. Not anymore.

The Emergence of Shadow Tribunals

In the modern era, overseas companies, along with the billionaires who own them, are able to litigate against governments for the policies they pass, at offshore tribunals staffed by corporate lawyers. The cases are conducted behind closed doors. Differing from national judiciaries, these tribunals allow no right of appeal or legal review. The general public cannot take a case to them, nor can our government, or even businesses operating from this country. The door is open exclusively to entities operating from foreign soil.

When a secret court rules that a legislative action might diminish the corporation’s expected profits, it can award damages of vast sums, even billions.

These awards represent not actual losses but money the arbitrators conclude the company could potentially have made. The state could be forced to abandon its policy. It will be hesitant to introducing similar legislation of a similar nature, worried about being sued.

A Process Growing Exponentially

Historically high figures of legal actions are being brought, as companies take cues from each other, and investment funds bankroll lawsuits for a share of a portion of the settlements. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the rulings enacted by elected bodies is that this provision has been written – without democratic mandate, and often in conditions of extreme secrecy – inside trade treaties.

A Real-World Example: The UK Coal Mine

A year ago, a conservation group won a great victory at the high court. The justice determined that plans to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine would have zero effect on our carbon budgets. The incoming administration later cancelled the licence the previous administration had approved. Currently, this legal outcome faces being overturned by an foreign court reporting to only the companies bringing the case.

During August, a firm whose ultimate owners are based in the tax haven filed a lawsuit challenging the UK government. The previous week a dispute settlement body in Washington DC was set up to consider the case.

The company is litigating against the UK for the profits it would have generated if the mine had received permission to commence operations. We have no clear indication how much this might be. Who is representing it against the British government? A member of parliament, and ex-law officer in the previous government, that great patriot Geoffrey Cox. The government makes a decision, the high court upholds it, then a overseas corporation contests it through an secretive offshore tribunal, and a sitting MP represents its behalf.

The Russian Challenge

On the same day that the court on the mining lawsuit was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know little of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has previously initiated proceedings against a small nation with similar intent, claiming sixteen billion dollars: an amount representing half government’s yearly income. Among the legal team on his side? Cherie Blair, married to the ex-UK leader.

Trade specialists contend that the EU’s delay in using frozen state funds as collateral for its financial support package arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, secretive influence over elected governments may be obstructing the finance Ukraine critically depends on.

Empty Promises and Mounting Costs

Politicians promised that these scenarios could not occur. In 2014, a former prime minister, advocating for the biggest and most dangerous of all these agreements, stated: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” A consultant on this issue accused campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “as corporations grasp the power bestowed upon them, they will shift their focus from the poorer states to the developed economies” were greeted by general mockery.

That prediction has now materialised. Recently, oil and gas and mining firms have filed a record number of claims against nations rich and poor, challenging – similar to the UK mine – state efforts to stop environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP