🔗 Share this article

Can you understand our political system functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. When a majority is secured, the bills become law. Statutes is upheld by the courts. That's it. Well, that’s how it used to work. No longer.

The Emergence of Secret Tribunals

In the modern era, overseas companies, or the billionaires behind them, can sue governments for the laws they pass, at private courts staffed by commercial attorneys. These proceedings are held behind closed doors. Unlike our courts, these tribunals provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. The door is open solely for entities operating from foreign soil.

When a secret court finds that a legislative action could harm the corporation’s expected profits, it can award compensation of vast sums, even billions.

These awards represent not tangible damages but money the arbitrators decide the company could potentially have made. The state may have to drop the legislation. It becomes hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being filed, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the settlements. The consequence? Sovereignty and democracy are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the choices made by legislatures is that this stipulation has been written – absent public approval, and frequently under conditions of profound opacity – within international trade agreements.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, a conservation group won a great victory at the senior court. The presiding officer found that schemes to dig the first new deep coal mine in the UK for 30 years, in Cumbria, were illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have had no consequence on climate commitments. The Labour government then withdrew the licence the Tories had approved. Currently, this legal outcome could be compromised by an secret arbitration panel accountable to exclusively the corporations petitioning it.

Last August, a company whose ultimate owners are based in the tax haven filed a lawsuit versus the UK government. Last week a arbitration panel in Washington DC was convened to adjudicate on it.

The claimant is suing the UK for the profits it would have generated if the mine had been permitted to proceed. Citizens have no clear indication how much this sum represents. Which individual is acting on its behalf in opposition to the UK administration? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state passes a law, the domestic court validates it, then a overseas corporation disputes it through an secretive arbitration panel, and a elected official works for its behalf.

A Sanctions Case

Concurrently that the panel on the coalmine case was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he will utilise the arbitration process to fight the penalties the UK imposed on him subsequent to the war in Ukraine. He has already initiated proceedings against Luxembourg for this reason, seeking a colossal sum: half that nation's yearly income. Included in the legal team representing him there? the wife of a former prime minister, married to the previous PM.

International law scholars believe that the EU’s delay in using frozen Russian assets as collateral for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states might be preventing the funds Ukraine desperately needs.

Misleading Claims and Escalating Risks

Politicians promised that these events could not occur. Previously, a senior politician, championing the biggest and most dangerous of all these agreements, told us: “We’ve signed trade deal upon trade deal and there has never been a case in the past.” An adviser on this issue accused activists of “alarmism … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries should be concerned by ISDS claims. Warnings that “when companies start to realise the authority they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were dismissed with widespread derision.

That warning has now materialised. Recently, fossil fuel and resource corporations have filed a historic level of claims against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – official measures to halt global warming. Companies have to date won $114bn through ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP