🔗 Share this article

Can you reckon our democratic process works? Maybe something like this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. Statutes are enforced by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Emergence of Shadow Courts

Nowadays, international firms, along with the oligarchs that control them, have the power to sue nation states for the regulations they pass, at private courts made up of corporate lawyers. Such disputes are held behind closed doors. Differing from national judiciaries, these bodies grant no opportunity to appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even companies based in this country. They are open only to businesses registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

This compensation are based not on tangible damages but money the tribunal officials conclude the company could potentially have made. The government may have to abandon its policy. It is deterred from passing future laws along the same lines, worried about facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as corporations learn from each other, and hedge funds fund legal actions in exchange for a cut of the awards. The outcome? Democratic sovereignty and democratic governance are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the choices enacted by legislatures is that this clause has been written – without public consent, and frequently under a climate of total confidentiality – within international trade agreements.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the High Court. The justice found that proposals to excavate the first deep coalmine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine could have zero effect on our carbon budgets. The new government subsequently revoked the licence the Tories had issued. Currently, this victory could be compromised by an offshore tribunal answering to no one but the corporations filing the suit.

During August, a corporate entity whose ultimate owners reside in the offshore financial centre lodged a claim versus the UK government. Recently a tribunal in Washington DC was established to adjudicate on it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had received permission to commence operations. We have no clear indication how much this sum represents. Who is acting on its behalf in opposition to the UK administration? An elected representative, and former attorney-general in the outgoing administration, that great patriot the MP. The administration enacts a policy, the domestic court supports it, then a foreign company challenges it through an undemocratic private court, and a sitting MP represents its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he’ll use the ISDS mechanism to fight the restrictions the UK enacted against him following the Russian aggression. He has already initiated proceedings against Luxembourg with similar intent, seeking a colossal sum: equivalent to half of nation's annual revenue. Part of the counsel on his side? Cherie Blair, married to the previous PM.

Legal experts contend that the EU’s delay in utilising seized Russian assets as security for its financial support package is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

Empty Promises and Mounting Costs

Politicians promised that these events wouldn’t happen. Previously, a government leader, promoting the largest and riskiest of all these agreements, declared: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this issue described critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear ISDS claims. Predictions that “when companies start to realise the authority they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with scepticism.

That prediction has now materialised. Recently, fossil fuel and resource corporations have lodged a historic level of suits against nations both wealthy and developing, contesting – like the example of the Whitehaven project – state efforts to halt environmental catastrophe. Companies have thus far won $114bn through ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP