🔗 Share this article

Can you understand our system of government works? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. However, that’s how it used to work. Those days are over.

The Advent of Secret Courts

In the modern era, international firms, or the oligarchs behind them, are able to litigate against governments for the policies they pass, at secret arbitration panels made up of corporate lawyers. These proceedings are held away from public scrutiny. In contrast to domestic courts, these tribunals allow no right of appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even businesses headquartered in this country. They are open solely for corporations based overseas.

If a tribunal finds that a government measure could harm the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These sums constitute not tangible damages but money the arbitrators determine the company would perhaps have made. The government may have to abandon its policy. It will be hesitant to introducing similar legislation in that area, worried about incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of disputes are being filed, as corporations learn from each other, and hedge funds fund legal actions in exchange for a share of the settlements. The consequence? Sovereignty and democracy are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the choices made by elected bodies is that this provision has been written – absent public approval, and typically amid conditions of total confidentiality – inside bilateral investment treaties.

A Specific Instance: The UK Coal Mine

A year ago, activists won a great victory at the high court. The justice determined that proposals to dig the first major coal mine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have had zero effect on climate commitments. The new government then withdrew the consent the Tories had granted. Today, this victory could be compromised by an secret arbitration panel reporting to only the entities bringing the case.

Last August, a corporate entity whose final controllers reside in the tax haven lodged a claim against the UK government. Recently a dispute settlement body in the United States was established to adjudicate on it.

The company is seeking compensation from the UK for the money it would have generated if the mine had received permission to commence operations. The public has no idea how much this sum represents. What legal team is serving as its counsel challenging the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The state passes a law, the national judiciary supports it, then a foreign company contests it through an unaccountable private court, and a elected official acts on its behalf.

An Oligarch's Challenge

Simultaneously that the court on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know little of the case to date, but it is highly possible that he may employ the arbitration process to fight the penalties the UK levied against him after the Russian aggression. He has previously started suing a small nation with similar intent, demanding a colossal sum: an amount representing half nation's annual revenue. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars contend that the EU’s delay in using frozen oligarchs' funds as collateral for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that these events could not occur. Previously, a former prime minister, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this issue labelled campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries needed to fear these lawsuits. Predictions that “when companies grasp the influence bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were met with scepticism.

That threat has come to pass. In the current period, fossil fuel and mining firms have initiated a historic level of cases against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – official measures to halt global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP