🔗 Share this article

How do you perceive our system of government operates? Maybe along the lines of this. We elect MPs. They vote on bills. If a majority is secured, the bills pass into law. Legislation is upheld by the courts. That's it. However, that used to be how it operated in the past. No longer.

The Rise of Secret Courts

In the modern era, overseas companies, or the oligarchs behind them, have the power to sue nation states for the regulations they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted behind closed doors. In contrast to domestic courts, these tribunals grant no avenue for appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even businesses based in this country. They are open exclusively to corporations operating from foreign soil.

When a secret court rules that a law or policy might diminish the corporation’s expected profits, it has the power to grant damages of vast sums, potentially billions.

This compensation constitute not real financial harm but money the arbitrators determine the company would perhaps have made. The state might be compelled to rescind the measure. It is deterred from introducing similar legislation in that area, worried about being sued.

A System Spiralling Out of Control

Historically high figures of legal actions are being initiated, as companies take cues from each other, and hedge funds fund legal actions in exchange for a portion of the settlements. The consequence? National sovereignty and popular rule are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede domestic law and the choices taken by elected bodies is that this provision has been written – without democratic mandate, and often in conditions of extreme secrecy – into bilateral investment treaties.

A Concrete Example: The UK Coalmine

A year ago, a conservation group secured a significant win at the high court. The presiding officer ruled that proposals to excavate the first major coal mine in the UK for 30 years, in Cumbria, were illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have zero effect on national carbon targets. The new government then withdrew the consent the former government had approved. Now, this victory is under threat by an secret arbitration panel accountable to only the companies filing the suit.

Last August, a firm whose final controllers are based in the offshore financial centre initiated proceedings challenging the UK government. Last week a dispute settlement body in the US capital was set up to adjudicate on it.

The company is suing the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. Who is representing it in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a foreign company contests it through an secretive arbitration panel, and a elected official works for its behalf.

An Oligarch's Case

On the same day that the tribunal on the mining lawsuit was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK imposed on him subsequent to the war in Ukraine. He has previously started suing another European state with similar intent, demanding sixteen billion dollars: half that nation's annual revenue. Among the legal team representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists argue that the EU’s hesitation in leveraging immobilised state funds as security for its financial support package stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over democratic administrations may be obstructing the money Ukraine urgently requires.

Empty Promises and Growing Risks

Politicians promised that such things could not occur. Previously, a government leader, championing the biggest and most dangerous of all such treaties, declared: “We’ve signed trade agreement upon trade deal and we have never seen a issue in the past.” An adviser on this issue labelled activists of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations had to worry about ISDS claims. Predictions that “when companies start to realise the influence they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were dismissed with scepticism.

That prediction has now materialised. In the current period, oil and gas and extraction companies have filed a record number of cases against nations across the economic spectrum, contesting – like the example of the Whitehaven project – state efforts to stop climate breakdown. Corporations have so far won vast sums through ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP