What is your reckon our democratic process works? Perhaps something like this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation is upheld by the courts. That's it. Yet, that’s how it once functioned. No longer.
Nowadays, international firms, and the wealthy individuals who own them, have the power to sue governments for the policies they pass, at offshore tribunals composed of business advocates. The cases are held behind closed doors. In contrast to domestic courts, these tribunals allow no right of appeal or legal review. You or I cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. They are open solely for businesses operating from foreign soil.
If a tribunal rules that a law or policy may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions, potentially billions.
These sums represent not tangible damages but compensation the panel members conclude the company could potentially have made. The administration could be forced to abandon its policy. It is deterred from introducing similar legislation of a similar nature, due to the risk of being sued.
Unprecedented levels of disputes are being brought, as firms learn from each other, and investment funds fund legal actions in exchange for a cut of the awards. The result? National sovereignty and democracy are turning into too costly.
The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the decisions made by elected bodies is that this stipulation has been inserted – absent public approval, and frequently under a climate of extreme secrecy – inside trade treaties.
Twelve months ago, a conservation group achieved a major legal triumph at the high court. The presiding officer found that proposals to dig the first new deep coal mine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The new government later cancelled the permission the former government had issued. Now, this success is under threat by an foreign court answering to no one but the entities filing the suit.
Last August, a corporate entity whose beneficial owners reside in the tax haven lodged a claim against the UK government. Recently a tribunal in the United States was set up to hear it.
The company is suing the UK for the profits it would have generated if the mine had been allowed to go ahead. We have no clear indication how much this might be. Which individual is serving as its counsel against the UK administration? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot the MP. The administration enacts a policy, the high court validates it, then a overseas corporation challenges it through an secretive offshore tribunal, and a elected official represents its behalf.
On the same day that the tribunal on the mining lawsuit was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know nothing of the case so far, but it is highly possible that he’ll use the ISDS mechanism to challenge the penalties the UK enacted against him after the invasion of Ukraine. He has previously filed a claim against Luxembourg on these grounds, claiming sixteen billion dollars: equivalent to half of government’s yearly budget. Included in the lawyers representing him there? the wife of a former prime minister, wife of the previous PM.
Legal experts argue that the EU’s delay in leveraging immobilised oligarchs' funds as security for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations could be blocking the funds Ukraine desperately needs.
Politicians promised that such things were not possible. Previously, a senior politician, advocating for the biggest and most dangerous of all such treaties, stated: “The UK has signed trade deal after trade deal and there has never been a problem in the past.” An adviser on this issue labelled critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear these lawsuits. Warnings that “once firms start to realise the power bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by scepticism.
That warning has now materialised. In the current period, oil and gas and extraction companies have filed a historic level of claims against nations rich and poor, challenging – similar to the UK mine – state efforts to prevent climate breakdown. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP
