How do you perceive our system of government functions? Maybe similar to this. The public votes for MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. The law is upheld by the courts. Simple as that. Well, that was how it once functioned. Not anymore.
The Rise of Secret Courts
In the modern era, international firms, along with the oligarchs who own them, are able to litigate against governments for the laws they pass, at offshore tribunals staffed by business advocates. The cases take place in secret. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, including enterprises headquartered in this country. Access is granted exclusively to businesses based overseas.
When a secret court finds that a government measure could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.
These awards constitute not real financial harm but money the arbitrators determine the company could potentially have made. The government may have to rescind the measure. It becomes deterred from enacting future policies of a similar nature, due to the risk of being sued.
A Mechanism Spiralling Out of Control
Record numbers of disputes are being filed, as corporations observe each other, and investment funds finance suits in exchange for a portion of the takings. The outcome? Democratic sovereignty and democracy are becoming too costly.
The process is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the rulings made by elected bodies is that this provision has been incorporated – without public consent, and often in an atmosphere of extreme secrecy – inside bilateral investment treaties.
A Concrete Example: The Whitehaven Coal Mine
Last year, activists won a great victory at the High Court. The presiding officer found that schemes to excavate the first new deep coal mine in the UK for three decades, in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had no impact on national carbon targets. The incoming administration then withdrew the permission the former government had granted. Currently, this legal outcome is under threat by an foreign court accountable to no one but the entities filing the suit.
During August, a company whose final controllers are located in the offshore financial centre lodged a claim versus the UK government. Last week a dispute settlement body in the United States was established to consider the case.
The company is suing the UK for the profits it could have earned if the mine had been permitted to go ahead. Citizens have little idea how much this could amount to. Which individual is serving as its counsel challenging the British government? A member of parliament, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the high court validates it, then a international entity disputes it through an secretive private court, and a elected official represents its behalf.
An Oligarch's Case
Concurrently that the court on the mining lawsuit was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it seems likely that he may employ the ISDS mechanism to fight the restrictions the UK enacted against him subsequent to the Russian aggression. He has filed a claim against Luxembourg for this reason, demanding a colossal sum: half that nation's yearly income. Among the counsel on his side? a prominent lawyer, married to the ex-UK leader.
Legal experts contend that the EU’s hesitation in leveraging immobilised state funds as security for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations might be preventing the money Ukraine critically depends on.
Misleading Claims and Growing Threats
Politicians promised that these events were not possible. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade deal upon trade deal and we have never seen a case in the past.” A consultant on this matter described campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations had to worry about these lawsuits. Warnings that “once firms begin to understand the influence bestowed upon them, they will turn their attention from the weak nations to the developed economies” were met with widespread derision.
That threat has now materialised. In the current period, oil and gas and extraction companies have initiated a unprecedented number of claims against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Companies have so far won $114bn through ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP
