🔗 Share this article

Can you understand our democratic process works? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills become law. Legislation are enforced by the courts. Simple as that. Well, that’s how it once functioned. Those days are over.

The Advent of Shadow Courts

Today, foreign corporations, along with the wealthy individuals behind them, have the power to sue nation states for the regulations they pass, at private courts composed of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these panels provide no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, nor can our government, including companies operating from this country. They are open solely for entities operating from foreign soil.

Should an arbitration panel determines that a law or policy might diminish the corporation’s expected profits, it has the power to grant damages of hundreds of millions, even billions.

This compensation constitute not tangible damages but funds the tribunal officials decide the company would perhaps have made. The state might be compelled to abandon its policy. It is discouraged from passing future laws along the same lines, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being initiated, as corporations take cues from each other, and investment funds bankroll lawsuits in return for a share of the settlements. The consequence? National sovereignty and democracy are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the choices enacted by legislatures is that this stipulation has been written – without democratic mandate, and frequently under a climate of total confidentiality – inside trade treaties.

A Concrete Instance: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the High Court. The judge determined that plans to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have no impact on our carbon budgets. The incoming administration later cancelled the consent the Tories had approved. Today, this success faces being overturned by an foreign court reporting to no one but the entities filing the suit.

Last August, a corporate entity whose ultimate owners are located in the Cayman Islands initiated proceedings versus the UK government. The previous week a dispute settlement body in the US capital was set up to consider the case.

The claimant is litigating against the UK for the revenue it might have made if the mine had been permitted to commence operations. Citizens have little idea how much this might be. Who is acting on its behalf against the British government? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court supports it, then a international entity contests it through an secretive private court, and a elected official works for its behalf.

The Russian Lawsuit

Simultaneously that the panel on the coalmine case was established, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case to date, but it appears probable that he will utilise the tribunal to challenge the sanctions the UK imposed on him after the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, demanding a colossal sum: equivalent to half of state's yearly budget. Among the counsel representing him there? the wife of a former prime minister, wife of the former British prime minister.

Legal experts contend that the EU’s delay in leveraging immobilised state funds as security for its aid for Ukraine stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

Misleading Claims and Escalating Risks

We were assured that such things wouldn’t happen. Previously, a government leader, advocating for the largest and riskiest of all these agreements, told us: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” A consultant on this issue labelled critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by such legal actions. Warnings that “as corporations start to realise the influence they now possess, they will redirect their efforts from the poorer states to the strong ones” were dismissed with general mockery.

That prediction has now materialised. In the current period, fossil fuel and mining firms have lodged a record number of claims against nations rich and poor, contesting – as in the case of the UK mine – government attempts to stop global warming. Corporations have to date won vast sums through ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP