🔗 Share this article

How do you understand our democratic process operates? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills become law. The law is upheld by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Courts

In the modern era, foreign corporations, along with the oligarchs that control them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held in secret. Differing from national judiciaries, these tribunals provide no opportunity to appeal or judicial review. The general public are unable to file a case to them, just as our government, or even enterprises headquartered in this country. The door is open exclusively to businesses operating from foreign soil.

Should an arbitration panel determines that a law or policy might diminish the corporation’s expected profits, it can award compensation of vast sums, running into billions.

This compensation constitute not actual losses but compensation the panel members decide the company would perhaps have made. The state may have to drop the legislation. It is discouraged from passing future laws along the same lines, for fear of being sued.

A Mechanism Running Rampant

Record numbers of cases are being filed, as firms observe each other, and private equity bankroll lawsuits in exchange for a portion of the settlements. The consequence? Sovereignty and democracy are turning into too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the decisions enacted by legislatures is that this provision has been incorporated – absent public approval, and often in a climate of extreme secrecy – within bilateral investment treaties.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, a conservation group secured a significant win at the high court. The judge determined that proposals to excavate the first major coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine could have no consequence on national carbon targets. The new government then withdrew the permission the former government had granted. Now, this legal outcome is under threat by an foreign court accountable to exclusively the entities filing the suit.

During August, a company whose final controllers reside in the Cayman Islands lodged a claim challenging the UK government. Recently a arbitration panel in the United States was established to adjudicate on it.

This firm is litigating against the UK for the revenue it could have earned if the mine had received permission to commence operations. We have little idea how much this could amount to. What legal team is serving as its counsel challenging the state? A sitting MP, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The state enacts a policy, the high court supports it, then a overseas corporation challenges it through an secretive arbitration panel, and a sitting MP represents its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case to date, but it appears probable that he will utilise the arbitration process to fight the penalties the UK imposed on him following the war in Ukraine. He has initiated proceedings against another European state for this reason, demanding a colossal sum: equivalent to half of nation's yearly budget. Included in the legal team on his side? the wife of a former prime minister, married to the ex-UK leader.

Legal experts argue that the EU’s delay in using frozen Russian assets as collateral for its aid for Ukraine stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This unprecedented, unaccountable authority over democratic administrations could be blocking the money Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that these scenarios were not possible. In 2014, a former prime minister, advocating for the most significant and hazardous of all such treaties, told us: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” An expert on this issue labelled activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “once firms grasp the power they now possess, they will shift their focus from the weak nations to the developed economies” were greeted by scepticism.

That warning has now materialised. This year, fossil fuel and mining firms have initiated a unprecedented number of cases against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – state efforts to prevent climate breakdown. Companies have so far won vast sums by using ISDS, of which energy giants have secured the majority. That represents the combined GDP