🔗 Share this article

How do you understand our system of government works? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it used to work. Those days are over.

The Advent of Secret Tribunals

Today, overseas companies, or the billionaires who own them, can sue elected administrations for the regulations they pass, at offshore tribunals made up of commercial attorneys. The cases take place in secret. Differing from national judiciaries, these panels allow no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. Access is granted exclusively to entities registered abroad.

When a secret court determines that a legislative action could harm the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, even billions.

These awards constitute not real financial harm but compensation the arbitrators conclude the company might otherwise have made. The state might be compelled to drop the legislation. It will be discouraged from passing future laws in that area, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of cases are being initiated, as firms learn from each other, and private equity finance suits in return for a cut of the settlements. The outcome? Sovereignty and democratic governance are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the decisions taken by parliaments is that this clause has been inserted – without democratic mandate, and frequently under a climate of total confidentiality – into international trade agreements.

A Specific Example: The Whitehaven Coalmine

Last year, activists achieved a major legal triumph at the High Court. The justice ruled that proposals to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on our carbon budgets. The incoming administration later cancelled the permission the former government had issued. Now, this legal outcome could be compromised by an secret arbitration panel reporting to only the companies filing the suit.

In August, a firm whose final controllers are located in the Cayman Islands lodged a claim challenging the UK government. Recently a arbitration panel in the United States was set up to hear it.

The company is seeking compensation from the UK for the money it might have made if the mine had received permission to proceed. We have no idea how much this sum represents. What legal team is representing it against the British government? An elected representative, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The state makes a decision, the high court supports it, then a overseas corporation challenges it through an undemocratic private court, and a sitting MP acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the tribunal on the coal mine dispute was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case so far, but it seems likely that he will utilise the arbitration process to contest the penalties the UK levied against him following the war in Ukraine. He has initiated proceedings against a small nation for this reason, claiming sixteen billion dollars: an amount representing half nation's yearly income. Among the lawyers on his side? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts contend that the EU’s delay in using frozen state funds as collateral for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states may be obstructing the money Ukraine urgently requires.

Misleading Claims and Growing Threats

Politicians promised that these events could not occur. In 2014, a former prime minister, championing the largest and riskiest of all these agreements, declared: “We’ve signed trade deal upon trade deal and we have never seen a problem in the past.” An adviser on this issue accused critics of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies grasp the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with scepticism.

That threat is now a reality. Recently, oil and gas and mining firms have lodged a historic level of cases against nations rich and poor, opposing – as in the case of the Whitehaven project – official measures to stop global warming. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP