🔗 Share this article

Can you perceive our political system functions? It could be along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. That's it. Well, that’s how it operated in the past. Not anymore.

The Advent of Secret Courts

Today, overseas companies, or the wealthy individuals who own them, have the power to sue governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are held away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, or even companies headquartered in this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel determines that a law or policy may compromise the corporation’s projected profits, it may order damages of hundreds of millions of pounds, running into billions.

This compensation constitute not tangible damages but compensation the tribunal officials decide the company might otherwise have made. The state may have to rescind the measure. It will be deterred from passing future laws in that area, due to the risk of facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being initiated, as companies observe each other, and investment funds fund legal actions in return for a cut of the awards. The consequence? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the decisions enacted by elected bodies is that this clause has been inserted – without public consent, and frequently under conditions of total confidentiality – within trade treaties.

A Real-World Example: The UK Coalmine

Last year, a conservation group won a great victory at the high court. The presiding officer ruled that schemes to dig the first new deep coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine could have no impact on climate commitments. The new government later cancelled the permission the Tories had issued. Today, this success faces being overturned by an secret arbitration panel reporting to only the corporations bringing the case.

During August, a firm whose beneficial owners reside in the offshore financial centre lodged a claim challenging the UK government. Last week a tribunal in Washington DC was established to consider the case.

The company is litigating against the UK for the profits it might have made if the mine had been permitted to proceed. The public has no clear indication how much this sum represents. Who is representing it in opposition to the state? A sitting MP, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court supports it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a elected official works for its behalf.

An Oligarch's Case

Simultaneously that the panel on the mining lawsuit was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. The public knows little of the case to date, but it is highly possible that he will utilise the arbitration process to challenge the restrictions the UK levied against him after the invasion of Ukraine. He has started suing Luxembourg for this reason, seeking sixteen billion dollars: equivalent to half of state's annual revenue. Included in the lawyers representing him there? Cherie Blair, wife of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Mounting Risks

Politicians promised that such things were not possible. Years ago, a government leader, promoting the largest and riskiest of all investment pacts, told us: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” An adviser on this matter described activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “when companies start to realise the power they now possess, they will turn their attention from the poorer states to the wealthy nations” were met with general mockery.

That threat has now materialised. Recently, oil and gas and mining firms have filed a unprecedented number of cases against nations rich and poor, challenging – as in the case of the UK mine – official measures to halt environmental catastrophe. Firms have to date won vast sums by using ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP