🔗 Share this article

What is your perceive our political system functions? It could be something like this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. End of story. Well, that was how it used to work. No longer.

The Rise of Secret Tribunals

Nowadays, foreign corporations, along with the wealthy individuals who own them, can sue governments for the policies they pass, at secret arbitration panels composed of business advocates. Such disputes are conducted in secret. In contrast to domestic courts, these bodies allow no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, including enterprises headquartered in this country. They are open exclusively to corporations operating from foreign soil.

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

These awards represent not real financial harm but funds the panel members determine the company might otherwise have made. The government might be compelled to abandon its policy. It is deterred from introducing similar legislation along the same lines, for fear of being sued.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as corporations observe each other, and hedge funds finance suits for a share of a share of the takings. The consequence? Democratic sovereignty and democracy are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the decisions enacted by elected bodies is that this stipulation has been inserted – absent public approval, and frequently under an atmosphere of profound opacity – within trade treaties.

A Real-World Instance: The UK Coalmine

Last year, environmental campaigners won a great victory at the high court. The presiding officer found that proposals to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine could have no consequence on climate commitments. The Labour government later cancelled the consent the former government had approved. Now, this success faces being overturned by an offshore tribunal answering to no one but the companies filing the suit.

During August, a company whose ultimate owners are based in the Cayman Islands initiated proceedings against the UK government. The previous week a dispute settlement body in the United States was established to consider the case.

The company is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to proceed. Citizens have no idea how much this might be. What legal team is acting on its behalf challenging the state? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the national judiciary upholds it, then a foreign company contests it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

The Russian Challenge

On the same day that the tribunal on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case so far, but it is highly possible that he may employ the ISDS mechanism to contest the penalties the UK levied against him subsequent to the invasion of Ukraine. He has already initiated proceedings against a small nation with similar intent, seeking a colossal sum: an amount representing half state's annual revenue. Included in the lawyers on his side? the wife of a former prime minister, wife of the previous PM.

Legal experts argue that the EU’s hesitation in using frozen oligarchs' funds as collateral 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 may be obstructing the funds Ukraine desperately needs.

Empty Promises and Escalating Risks

The public was told that these events were not possible. In 2014, a government leader, promoting the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to investment treaty after trade deal and we have never seen a case in the past.” A consultant on this matter labelled critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that exclusively weaker states needed to fear such legal actions. Predictions that “when companies grasp the authority they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with general mockery.

That warning is now a reality. In the current period, energy and resource corporations have lodged a unprecedented number of suits against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured $84bn. That is equivalent to the combined GDP