🔗 Share this article

What is your understand our democratic process operates? Perhaps along the lines of this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills become law. The law is maintained by the courts. Simple as that. Yet, that’s how it used to work. Those days are over.

The Advent of Shadow Courts

Today, overseas companies, and the oligarchs behind them, can sue governments for the policies they pass, at offshore tribunals staffed by commercial attorneys. The cases take place away from public scrutiny. Unlike our courts, these tribunals grant no right of appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted only to entities operating from foreign soil.

When a secret court rules that a legislative action could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

These awards constitute not tangible damages but funds the tribunal officials conclude the company might otherwise have made. The administration might be compelled to abandon its policy. It is hesitant to introducing similar legislation along the same lines, worried about facing litigation.

A Mechanism Running Rampant

Record numbers of cases are being brought, as companies take cues from each other, and private equity finance suits in return for a cut of the awards. The result? National sovereignty and democracy are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the decisions enacted by elected bodies is that this clause has been incorporated – absent public approval, and often in a climate of extreme secrecy – into international trade agreements.

A Specific Case: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the High Court. The presiding officer determined that plans to excavate the first deep coalmine in the UK for a generation, in Cumbria, were unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration later cancelled the permission the former government had issued. Now, this victory faces being overturned by an offshore tribunal accountable to exclusively the entities filing the suit.

Last August, a firm whose ultimate owners reside in the tax haven initiated proceedings against the UK government. Last week a tribunal in Washington DC was convened to hear it.

This firm is suing the UK for the money it would have generated if the mine had been permitted to proceed. We have little idea how much this sum represents. What legal team is serving as its counsel in opposition to the UK administration? A member of parliament, and former attorney-general in the previous government, the noted patriot the MP. The state makes a decision, the national judiciary supports it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

Concurrently that the court on the coalmine case was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case at present, but it seems likely that he’ll use the ISDS mechanism to fight the sanctions the UK levied against him after the war in Ukraine. He has filed a claim against a small nation on these grounds, seeking sixteen billion dollars: an amount representing half state's yearly budget. Part of the counsel representing him there? Cherie Blair, spouse of the former British prime minister.

International law scholars believe that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over democratic administrations might be preventing the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that such things were not possible. Previously, a senior politician, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” An expert on this matter accused campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries needed to fear these lawsuits. Predictions that “once firms grasp the influence bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were dismissed with general mockery.

That prediction is now a reality. This year, energy and mining firms have lodged a record number of cases against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – state efforts to prevent environmental catastrophe. Corporations have so far won $114bn by using ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP