🔗 Share this article

Can you understand our political system works? Maybe along the lines of this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills become law. The law is upheld by the courts. Simple as that. However, that’s how it once functioned. No longer.

The Advent of Secret Courts

Nowadays, foreign corporations, or the wealthy individuals who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings take place behind closed doors. In contrast to domestic courts, these tribunals allow no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, or even businesses operating from this country. They are open only to entities registered abroad.

If a tribunal rules that a legislative action might diminish the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, potentially billions.

This compensation represent not real financial harm but compensation the panel members conclude the company might otherwise have made. The administration might be compelled to drop the legislation. It becomes deterred from passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as corporations observe each other, and hedge funds finance suits in exchange for a share of the takings. The result? Democratic sovereignty and democratic governance are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the decisions enacted by parliaments is that this provision has been inserted – without public consent, and typically amid an atmosphere of profound opacity – within international trade agreements.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, activists won a great victory at the senior court. The judge found that schemes to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine could have no consequence on climate commitments. The incoming administration subsequently revoked the licence the Tories had approved. Now, this success could be compromised by an secret arbitration panel reporting to exclusively the entities filing the suit.

Last August, a corporate entity whose final controllers are located in the tax haven lodged a claim challenging the UK government. The previous week a arbitration panel in Washington DC was established to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to go ahead. We have no idea how much this might be. What legal team is representing it against the British government? A member of parliament, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The government passes a law, the national judiciary validates it, then a overseas corporation disputes it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Case

On the same day that the court on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case so far, but it appears probable that he’ll use the tribunal to contest the penalties the UK enacted against him subsequent to the war in Ukraine. He has previously initiated proceedings against another European state with similar intent, claiming sixteen billion dollars: an amount representing half state's yearly income. Among the counsel representing him there? Cherie Blair, wife of the ex-UK leader.

International law scholars contend that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its financial support package is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Escalating Costs

Politicians promised that such things were not possible. Previously, a former prime minister, championing the largest and riskiest of all these agreements, declared: “The UK has signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this issue accused activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries needed to fear these lawsuits. Warnings that “as corporations start to realise the authority bestowed upon them, they will shift their focus from the weak nations to the strong ones” were dismissed with scepticism.

That prediction has come to pass. In the current period, oil and gas and extraction companies have lodged a unprecedented number of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – official measures to stop global warming. Corporations have thus far won vast sums by using ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP