🔗 Share this article

Can you reckon our democratic process functions? Maybe something like this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills pass into law. Legislation is maintained by the courts. That's it. However, that used to be how it once functioned. Those days are over.

The Emergence of Secret Courts

Nowadays, foreign corporations, or the billionaires that control them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels composed of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these bodies grant no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even enterprises headquartered in this country. The door is open only to businesses based overseas.

When a secret court finds that a government measure could harm the corporation’s anticipated profits, it can award compensation of vast sums, potentially billions.

These sums are based not on tangible damages but money the tribunal officials determine the company might otherwise have made. The administration could be forced to abandon its policy. It becomes hesitant to introducing similar legislation of a similar nature, for fear of facing litigation.

A System Growing Exponentially

Record numbers of cases are being brought, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the settlements. The outcome? Sovereignty and democratic governance are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the decisions enacted by parliaments is that this provision has been written – absent public approval, and typically amid conditions of extreme secrecy – inside trade treaties.

A Specific Example: The UK Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The judge determined that proposals to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine would have no consequence on national carbon targets. The incoming administration subsequently revoked the licence the previous administration had granted. Now, this legal outcome could be compromised by an secret arbitration panel reporting to only the corporations petitioning it.

Last August, a company whose ultimate owners are located in the offshore financial centre lodged a claim against the UK government. The previous week a dispute settlement body in Washington DC was convened to adjudicate on it.

The company is suing the UK for the profits it might have made if the mine had been allowed to go ahead. Citizens have no clear indication how much this might be. Which individual is acting on its behalf in opposition to the UK administration? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The government makes a decision, the national judiciary supports it, then a international entity challenges it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the mining lawsuit was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has started suing Luxembourg on these grounds, demanding sixteen billion dollars: equivalent to half of government’s annual revenue. Included in the lawyers representing him there? a prominent lawyer, married to the former British prime minister.

Legal experts argue that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its loan to Ukraine stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over democratic administrations could be blocking the money Ukraine urgently requires.

False Assurances and Escalating Risks

Politicians promised that these scenarios wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all such treaties, declared: “The UK has signed trade agreement after trade deal and we have never seen a problem in the past.” An adviser on this topic labelled critics of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear these lawsuits. Warnings that “when companies grasp the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were met with general mockery.

That warning is now a reality. Recently, oil and gas and mining firms have lodged a record number of claims against nations across the economic spectrum, challenging – like the example of the UK mine – official measures to prevent climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured $84bn. That equates to the combined GDP