🔗 Share this article

Can you perceive our democratic process operates? Maybe along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills become law. Legislation are enforced by the courts. Simple as that. Yet, that was how it once functioned. Not anymore.

The Advent of Shadow Tribunals

In the modern era, overseas companies, along with the wealthy individuals that control them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels staffed by business advocates. These proceedings are conducted away from public scrutiny. Unlike our courts, these tribunals allow no right of appeal or oversight by judges. Ordinary citizens 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.

If a tribunal determines that a legislative action could harm the corporation’s anticipated profits, it has the power to grant damages of vast sums, running into billions.

These awards are based not on real financial harm but compensation the arbitrators determine the company would perhaps have made. The administration may have to drop the legislation. It becomes deterred from passing future laws in that area, for fear of being sued.

A Process Spiralling Out of Control

Historically high figures of legal actions are being brought, as firms observe each other, and investment funds bankroll lawsuits in exchange for a portion of the settlements. The outcome? Democratic sovereignty and democracy are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the decisions made by parliaments is that this stipulation has been written – absent public approval, and often in conditions of total confidentiality – into bilateral investment treaties.

A Concrete Example: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The judge ruled that proposals to dig the first new deep coal mine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no consequence on national carbon targets. The new government later cancelled the consent the Tories had issued. Today, this victory could be compromised by an secret arbitration panel reporting to only the entities bringing the case.

During August, a company whose ultimate owners are based in the offshore financial centre filed a lawsuit versus the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

The company is litigating against the UK for the revenue it would have generated if the mine had been permitted to proceed. The public has no clear indication how much this might be. What legal team is acting on its behalf challenging the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The administration makes a decision, the domestic court validates it, then a overseas corporation challenges it through an secretive offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the mining lawsuit was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he’ll use the tribunal to challenge the penalties the UK levied against him after the invasion of Ukraine. He has previously initiated proceedings against Luxembourg for this reason, demanding $16bn: equivalent to half of government’s yearly income. Among the lawyers on his side? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists believe that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over democratic administrations could be blocking the funds Ukraine desperately needs.

Empty Promises and Mounting Threats

The public was told that such things were not possible. Years ago, a government leader, advocating for the biggest and most dangerous of all these agreements, told us: “The UK has signed investment treaty upon trade deal and we have never seen a case in the past.” An expert on this issue accused campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about ISDS claims. Predictions that “when companies start to realise the influence they’ve been granted, they will shift their focus from the poorer states to the developed economies” were greeted by general mockery.

That threat has come to pass. Recently, energy and mining firms have initiated a historic level of cases against nations across the economic spectrum, opposing – similar to the Whitehaven project – official measures to stop climate breakdown. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP