🔗 Share this article

Can you understand our system of government works? It could be something like this. Citizens choose 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 was how it operated in the past. Not anymore.

The Emergence of Secret Tribunals

Nowadays, international firms, along with the billionaires behind them, can sue governments for the laws they pass, at secret arbitration panels composed of commercial attorneys. The cases are held in secret. Unlike our courts, these bodies allow no avenue for appeal or legal review. The general public are unable to file a case to them, just as our government, including companies operating from this country. They are open solely for businesses operating from foreign soil.

When a secret court finds that a legislative action may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions of pounds, even billions.

These awards represent not tangible damages but funds the arbitrators decide the company might otherwise have made. The state may have to abandon its policy. It is discouraged from introducing similar legislation along the same lines, worried about being sued.

A System Spiralling Out of Control

Historically high figures of disputes are being brought, as companies learn from each other, and hedge funds fund legal actions for a share of a cut of the awards. The result? Sovereignty and democracy are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the choices taken by legislatures is that this clause has been written – without public consent, and frequently under a climate of total confidentiality – inside international trade agreements.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, activists won a great victory at the high court. The presiding officer ruled that schemes to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine would have had zero effect on climate commitments. The new government subsequently revoked the consent the previous administration had granted. Today, this success could be compromised by an secret arbitration panel answering to no one but the entities petitioning it.

Last August, a company whose beneficial owners are based in the tax haven lodged a claim challenging the UK government. The previous week a arbitration panel in the United States was established to hear it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been permitted to go ahead. Citizens have little idea how much this might be. Which individual is serving as its counsel in opposition to the UK administration? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the high court upholds it, then a foreign company disputes it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Case

Simultaneously that the court on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the penalties the UK imposed on him after the invasion of Ukraine. He has initiated proceedings against another European state on these grounds, claiming $16bn: an amount representing half government’s yearly budget. Part of the counsel on his side? a prominent lawyer, wife of the former British prime minister.

Legal experts believe that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over democratic administrations could be blocking the money Ukraine desperately needs.

Empty Promises and Escalating Threats

The public was told that these scenarios were not possible. Years ago, a senior politician, advocating for the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” An expert on this matter accused critics of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms start to realise the influence they’ve been granted, they will redirect their efforts from the poorer states to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. Recently, energy and extraction companies have initiated a unprecedented number of claims against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – state efforts to halt climate breakdown. Firms have thus far won vast sums by using ISDS, of which oil majors have obtained eighty-four billion dollars. That represents the combined GDP