🔗 Share this article

What is your perceive our democratic process works? It could be along the lines of this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills become law. The law are enforced by the courts. End of story. Yet, that was how it operated in the past. Not anymore.

The Rise of Secret Tribunals

In the modern era, overseas companies, along with the billionaires behind them, have the power to sue nation states for the policies they pass, at offshore tribunals made up of corporate lawyers. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies provide no opportunity to appeal or legal review. The general public are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. Access is granted solely for corporations operating from foreign soil.

If a tribunal rules that a legislative action may compromise the corporation’s projected profits, it may order damages of hundreds of millions of pounds, running into billions.

This compensation represent not actual losses but money the panel members determine the company would perhaps have made. The government may have to drop the legislation. It is deterred from introducing similar legislation in that area, for fear of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The result? Sovereignty and democracy are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the rulings enacted by legislatures is that this clause has been incorporated – without public consent, and frequently under conditions of total confidentiality – within trade treaties.

A Real-World Case: The UK Coalmine

A year ago, a conservation group won a great victory at the high court. The presiding officer ruled that plans to dig the first major coal mine in the UK for three decades, in northwest England, had been illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had zero effect on national carbon targets. The new government subsequently revoked the consent the former government had granted. Currently, this legal outcome faces being overturned by an offshore tribunal accountable to no one but the companies bringing the case.

Last August, a corporate entity whose beneficial owners reside in the tax haven lodged a claim against the UK government. The previous week a arbitration panel in the US capital was convened to consider the case.

The company is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to go ahead. We have no clear indication how much this sum represents. Who is serving as its counsel against the British government? A member of parliament, and ex-law officer in the previous government, that great patriot the MP. The administration makes a decision, the domestic court supports it, then a international entity disputes it through an unaccountable offshore tribunal, and a elected official represents its behalf.

The Russian Lawsuit

On the same day that the panel on the coalmine case was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case to date, but it is highly possible that he’ll use the arbitration process to fight the sanctions the UK imposed on him following the war in Ukraine. He has already filed a claim against Luxembourg on these grounds, demanding a colossal sum: an amount representing half state's yearly income. Among the counsel representing him there? the wife of a former prime minister, married to the previous PM.

Legal experts believe that the EU’s procrastination in utilising seized state funds as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Growing Threats

Politicians promised that these events could not occur. Years ago, a senior politician, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed trade agreement after trade deal and we have never seen a problem in the past.” An adviser on this issue labelled campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “when companies start to realise the power bestowed upon them, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with scepticism.

That prediction has now materialised. Recently, oil and gas and extraction companies have initiated a record number of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – government attempts to prevent climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP