🔗 Share this article

Can you understand our democratic process operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. The law are enforced by the courts. End of story. Well, that’s how it operated in the past. No longer.

The Rise of Secret Courts

Nowadays, international firms, or the billionaires behind them, have the power to sue elected administrations for the policies they pass, at private courts composed of commercial attorneys. These proceedings are held away from public scrutiny. Unlike our courts, these bodies grant no opportunity to appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even businesses headquartered in this country. Access is granted exclusively to corporations operating from foreign soil.

Should an arbitration panel determines that a legislative action might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

This compensation constitute not actual losses but funds the arbitrators conclude the company might otherwise have made. The government may have to rescind the measure. It is deterred from enacting future policies of a similar nature, for fear of being sued.

A System Growing Exponentially

Record numbers of legal actions are being brought, as companies observe each other, and investment funds bankroll lawsuits in exchange for a share of the settlements. The result? Democratic sovereignty and popular rule are now prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the rulings enacted by elected bodies is that this provision has been incorporated – without democratic mandate, and typically amid conditions of total confidentiality – into bilateral investment treaties.

A Concrete Example: The UK Coalmine

Twelve months ago, activists won a great victory at the High Court. The justice ruled that schemes to dig the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no consequence on climate commitments. The incoming administration subsequently revoked the permission the Tories had granted. Currently, this victory is under threat by an secret arbitration panel reporting to no one but the entities bringing the case.

Last August, a corporate entity whose beneficial owners are located in the tax haven initiated proceedings against the UK government. The previous week a dispute settlement body in Washington DC was set up to adjudicate on it.

The company is suing the UK for the money it might have made if the mine had been allowed to proceed. We have little idea how much this could amount to. Which individual is serving as its counsel against the UK administration? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The government passes a law, the high court upholds it, then a foreign company challenges it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Case

On the same day that the court on the coalmine case was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case so far, but it seems likely that he will utilise the ISDS mechanism to fight the restrictions the UK enacted against him after the war in Ukraine. He has previously filed a claim against Luxembourg on these grounds, demanding a colossal sum: half that state's yearly income. Included in the legal team on his side? the wife of a former prime minister, married to the previous PM.

International law scholars argue that the EU’s delay in utilising seized state funds as security for its financial support package is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states could be blocking the funds Ukraine desperately needs.

False Assurances and Mounting Threats

The public was told that these events could not occur. Previously, a senior politician, advocating for the most significant and hazardous of all such treaties, declared: “We’ve signed trade deal upon trade deal and there has not been a case in the past.” An adviser on this topic labelled campaigners of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Predictions that “as corporations start to realise the influence they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were met with scepticism.

That prediction has now materialised. In the current period, energy and extraction companies have filed a unprecedented number of claims against nations both wealthy and developing, challenging – like the example of the Whitehaven project – government attempts to stop climate breakdown. Firms have so far won vast sums through ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP