🔗 Share this article

How do you reckon our democratic process operates? It could be along the lines of this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills pass into law. Statutes are enforced by the courts. That's it. Well, that’s how it once functioned. Those days are over.

The Rise of Shadow Tribunals

Today, overseas companies, and the wealthy individuals behind them, have the power to sue governments for the regulations they pass, at offshore tribunals staffed by corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these panels allow no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even companies based in this country. They are open only to entities registered abroad.

When a secret court rules that a government measure might diminish the corporation’s expected profits, it has the power to grant damages of hundreds of millions, even billions.

These sums are based not on real financial harm but compensation the arbitrators determine the company could potentially have made. The government could be forced to drop the legislation. It will be deterred from introducing similar legislation in that area, due to the risk of facing litigation.

A System Spiralling Out of Control

Record numbers of cases are being filed, as companies learn from each other, and private equity finance suits in exchange for a share of the awards. The consequence? Democratic sovereignty and democratic governance are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the decisions made by elected bodies is that this clause has been inserted – absent public approval, and frequently under conditions of profound opacity – into trade treaties.

A Concrete Instance: The Cumbrian Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The presiding officer found that plans to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The new government later cancelled the permission the previous administration had granted. Today, this success could be compromised by an offshore tribunal answering to no one but the entities bringing the case.

During August, a company whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. The previous week a dispute settlement body in the US capital was established to hear it.

The claimant is litigating against the UK for the revenue it might have made if the mine had been permitted to proceed. The public has little idea how much this sum represents. Who is representing it challenging the British government? An elected representative, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary supports it, then a foreign company challenges it through an secretive arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coal mine dispute was convened, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case to date, but it appears probable that he’ll use the arbitration process to contest the penalties the UK imposed on him subsequent to the Russian aggression. He has filed a claim against Luxembourg on these grounds, claiming a colossal sum: an amount representing half state's yearly budget. Among the lawyers on his side? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in leveraging immobilised Russian assets as security for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over sovereign states could be blocking the finance Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these scenarios could not occur. Years ago, a government leader, advocating for the most significant and hazardous of all such treaties, stated: “Britain has agreed to trade agreement upon trade deal and we have never seen a issue in the past.” An adviser on this topic labelled activists of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “when companies start to realise the power bestowed upon them, they will shift their focus from the poorer states to the developed economies” were dismissed with scepticism.

That prediction has now materialised. In the current period, energy and mining firms have filed a record number of claims against nations across the economic spectrum, challenging – as in the case of the UK mine – official measures to prevent environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP