🔗 Share this article

Can you reckon our system of government functions? Perhaps similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills become law. Legislation are enforced by the courts. That's it. Yet, that used to be how it operated in the past. Not anymore.

The Advent of Secret Tribunals

Today, foreign corporations, or the oligarchs behind them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels composed of corporate lawyers. The cases are conducted in secret. Differing from national judiciaries, these bodies grant no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, or even companies operating from this country. They are open solely for corporations registered abroad.

Should an arbitration panel finds that a law or policy might diminish the corporation’s projected profits, it can award financial penalties of hundreds of millions, running into billions.

This compensation represent not real financial harm but funds the panel members conclude the company might otherwise have made. The government might be compelled to drop the legislation. It becomes deterred from enacting future policies in that area, for fear of being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being initiated, as firms take cues from each other, and private equity fund legal actions in exchange for a share of the settlements. The result? National sovereignty and democracy are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the choices made by elected bodies is that this clause has been inserted – without democratic mandate, and often in conditions of profound opacity – within bilateral investment treaties.

A Specific Example: The Cumbrian Coalmine

Last year, activists secured a significant win at the high court. The justice 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 previous government, which had accepted the questionable argument that the mine would have had zero effect on national carbon targets. The incoming administration subsequently revoked the licence the Tories had issued. Today, this legal outcome faces being overturned by an offshore tribunal reporting to only the companies petitioning it.

In August, a corporate entity whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. Last week a dispute settlement body in the US capital was set up to hear it.

The claimant is litigating against the UK for the revenue it might have made if the mine had been permitted to proceed. Citizens have little idea how much this could amount to. Who is acting on its behalf against the British government? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government passes a law, the domestic court upholds it, then a foreign company challenges it through an undemocratic arbitration panel, and a elected official acts on its behalf.

A Sanctions Case

Simultaneously that the tribunal on the mining lawsuit was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case to date, but it appears probable that he may employ the arbitration process to contest the restrictions the UK imposed on him following the war in Ukraine. He has previously initiated proceedings against another European state for this reason, claiming sixteen billion dollars: equivalent to half of state's yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, married to the former British prime minister.

Legal experts argue that the EU’s procrastination in using frozen Russian assets as collateral for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Mounting Risks

We were assured that such things could not occur. Years ago, a senior politician, advocating for the biggest and most dangerous of all such treaties, told us: “We’ve signed trade deal after trade deal and we have never seen a case in the past.” An adviser on this topic accused campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “when companies grasp the influence they now possess, they will turn their attention from the vulnerable countries to the strong ones” were greeted by widespread derision.

That prediction has come to pass. In the current period, fossil fuel and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, challenging – similar to the Whitehaven project – government attempts to prevent global warming. Companies have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP