🔗 Share this article

What is your understand our democratic process functions? It could be similar to this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. The law are enforced by the courts. Simple as that. Yet, that was how it once functioned. Not anymore.

The Advent of Secret Tribunals

In the modern era, foreign corporations, along with the wealthy individuals behind them, are able to litigate against governments for the laws they pass, at private courts composed of commercial attorneys. Such disputes are held behind closed doors. In contrast to domestic courts, these tribunals provide no right of appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even enterprises operating from this country. They are open solely for entities operating from foreign soil.

If a tribunal finds that a legislative action might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions, potentially billions.

These sums are based not on actual losses but funds the tribunal officials decide the company would perhaps have made. The administration may have to rescind the measure. It will be discouraged from introducing similar legislation of a similar nature, worried about facing litigation.

A System Growing Exponentially

Unprecedented levels of cases are being brought, as firms take cues from each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The consequence? Sovereignty and democracy are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the decisions taken by legislatures is that this clause has been incorporated – without democratic mandate, and frequently under an atmosphere of profound opacity – inside bilateral investment treaties.

A Concrete Example: The UK Coalmine

Twelve months ago, activists secured a significant win at the high court. The presiding officer found that plans to open the first major coal mine in the UK for three decades, in Cumbria, were illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine could have zero effect on national carbon targets. The incoming administration later cancelled the consent the Tories had issued. Today, this success faces being overturned by an secret arbitration panel accountable to exclusively the companies bringing the case.

In August, a corporate entity whose ultimate owners are located in the Cayman Islands initiated proceedings challenging the UK government. Recently a tribunal in Washington DC was set up to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had received permission to proceed. We have no clear indication how much this sum represents. Who is representing it against the state? An elected representative, and former attorney-general in the Conservative government, that great patriot Sir Geoffrey Cox. The government passes a law, the domestic court upholds it, then a international entity contests it through an secretive private court, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the coal mine dispute was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case at present, but it seems likely that he’ll use the tribunal to fight the restrictions the UK levied against him after the invasion of Ukraine. He has previously filed a claim against another European state on these grounds, seeking sixteen billion dollars: an amount representing half state's yearly income. Part of the legal team representing him there? a prominent lawyer, wife of the ex-UK leader.

International law scholars argue that the EU’s delay in leveraging immobilised Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments may be obstructing the money Ukraine critically depends on.

Misleading Claims and Growing Risks

The public was told that these scenarios were not possible. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, told us: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this topic labelled activists of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear such legal actions. Predictions that “once firms grasp the authority they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were met with widespread derision.

That threat has now materialised. In the current period, energy and extraction companies have filed a historic level of suits against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to stop global warming. Firms have so far won vast sums through ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP