🔗 Share this article

Can you understand our democratic process works? Maybe something like this. We elect MPs. They vote on bills. If a majority is achieved, the bills become law. The law is maintained by the courts. That's it. Yet, that was how it once functioned. No longer.

The Emergence of Secret Courts

Today, international firms, along with the billionaires that control them, can sue elected administrations for the policies they pass, at offshore tribunals staffed by commercial attorneys. The cases are held behind closed doors. In contrast to domestic courts, these panels grant no avenue for appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, including businesses operating from this country. The door is open only to businesses based overseas.

Should an arbitration panel rules that a legislative action could harm the corporation’s projected profits, it has the power to grant financial penalties of vast sums, even billions.

These awards are based not on real financial harm but funds the tribunal officials decide the company might otherwise have made. The state could be forced to drop the legislation. It will be discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of disputes are being filed, as companies take cues from each other, and hedge funds fund legal actions in return for a share of the settlements. The consequence? Democratic sovereignty and popular rule are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the rulings enacted by elected bodies is that this provision has been incorporated – without democratic mandate, and often in conditions of profound opacity – into international trade agreements.

A Concrete Case: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The presiding officer determined that schemes to dig the first deep coalmine in the UK for three decades, in Cumbria, were illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The new government then withdrew the permission the previous administration had issued. Now, this victory could be compromised by an secret arbitration panel answering to no one but the companies petitioning it.

In August, a corporate entity whose final controllers are located in the Cayman Islands filed a lawsuit versus the UK government. The previous week a arbitration panel in the United States was set up to hear it.

The company is suing the UK for the money it would have generated if the mine had been permitted to go ahead. The public has little idea how much this could amount to. Who is serving as its counsel in opposition to the British government? A sitting MP, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the domestic court supports it, then a foreign company challenges it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Lawsuit

On the same day that the court on the mining lawsuit was convened, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows scarce of the case so far, but it is highly possible that he’ll use the tribunal to challenge the penalties the UK enacted against him subsequent to the war in Ukraine. He has already initiated proceedings against another European state with similar intent, seeking $16bn: an amount representing half state's yearly budget. Part of the legal team representing him there? Cherie Blair, wife of the former British prime minister.

Legal experts believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine urgently requires.

Empty Promises and Mounting Costs

We were assured that these scenarios were not possible. In 2014, a former prime minister, promoting the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement after trade deal and there has not been a problem in the past.” An adviser on this matter described critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by such legal actions. Warnings that “once firms begin to understand the authority they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning has now materialised. Recently, energy and mining firms have filed a unprecedented number of claims against nations across the economic spectrum, contesting – like the example of the UK mine – state efforts to prevent environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP