🔗 Share this article

Can you reckon our democratic process works? Perhaps similar to this. We elect MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. The law are enforced by the courts. That's it. However, that used to be how it operated in the past. Not anymore.

The Rise of Secret Courts

In the modern era, international firms, along with the oligarchs behind them, have the power to sue governments for the policies they pass, at offshore tribunals staffed by business advocates. The cases take place behind closed doors. Differing from national judiciaries, these panels grant no right of appeal or judicial review. You or I cannot take a case to them, nor can our government, or even companies operating from this country. They are open solely for entities registered abroad.

When a secret court finds that a government measure might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, running into billions.

These awards are based not on actual losses but funds the tribunal officials decide the company would perhaps have made. The state could be forced to drop the legislation. It is deterred from passing future laws of a similar nature, worried about incurring a lawsuit.

A System Growing Exponentially

Historically high figures of disputes are being initiated, as companies take cues from each other, and hedge funds bankroll lawsuits for a share of a portion of the settlements. The outcome? Democratic sovereignty and democracy are now prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the decisions made by legislatures is that this provision has been inserted – without democratic mandate, and typically amid an atmosphere of extreme secrecy – within bilateral investment treaties.

A Real-World Case: The UK Coalmine

A year ago, a conservation group achieved a major legal triumph at the senior court. The justice found that schemes to excavate the first major coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine could have zero effect on national carbon targets. The new government subsequently revoked the licence the former government had granted. Now, this victory faces being overturned by an offshore tribunal accountable to no one but the entities petitioning it.

During August, a company whose final controllers reside in the offshore financial centre filed a lawsuit challenging the UK government. Last week a dispute settlement body in the United States was established to hear it.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to commence operations. We have little idea how much this might be. Which individual is acting on its behalf challenging the British government? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The administration passes a law, the high court upholds it, then a foreign company disputes it through an undemocratic arbitration panel, and a elected official acts on its behalf.

The Russian Challenge

On the same day that the court on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the penalties the UK levied against him following the Russian aggression. He has initiated proceedings against a small nation for this reason, seeking sixteen billion dollars: equivalent to half of state's yearly budget. Among the lawyers representing him there? a prominent lawyer, married to the ex-UK leader.

Trade specialists argue that the EU’s hesitation in using frozen oligarchs' funds as collateral for its aid for Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Growing Threats

The public was told that these events could not occur. Previously, a government leader, advocating for the most significant and hazardous of all these agreements, told us: “The UK has signed investment treaty after trade deal and there has never been a issue in the past.” An expert on this topic described campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states should be concerned by such legal actions. Predictions that “once firms start to realise the authority bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were greeted by general mockery.

That prediction is now a reality. Recently, energy and extraction companies have initiated a record number of suits against nations both wealthy and developing, challenging – like the example of the Whitehaven project – state efforts to prevent climate breakdown. Firms have to date won vast sums by using ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP