🔗 Share this article

Can you understand our political system operates? It could be similar to this. We elect MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Statutes is maintained by the courts. That's it. Yet, that used to be how it operated in the past. Those days are over.

The Emergence of Shadow Courts

Today, foreign corporations, or the oligarchs behind them, are able to litigate against governments for the regulations they pass, at offshore tribunals made up of corporate lawyers. Such disputes take place in secret. Differing from national judiciaries, these panels grant no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, just as our government, or even companies based in this country. They are open exclusively to corporations operating from foreign soil.

Should an arbitration panel finds that a law or policy may compromise the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, even billions.

This compensation represent not tangible damages but funds the panel members decide the company would perhaps have made. The government may have to drop the legislation. It will be deterred from enacting future policies in that area, worried about being sued.

A System Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as firms observe each other, and investment funds fund legal actions for a share of a cut of the takings. The consequence? Democratic sovereignty and popular rule are becoming too costly.

The system is referred to 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 democratic mandate, and often in conditions of total confidentiality – inside trade treaties.

A Concrete Example: The UK Coalmine

Twelve months ago, activists secured a significant win 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 northwest England, were illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine would have had zero effect on national carbon targets. The incoming administration subsequently revoked the consent the previous administration had approved. Now, this success is under threat by an foreign court accountable to exclusively the entities petitioning it.

During August, a company whose ultimate owners are based in the Cayman Islands filed a lawsuit against the UK government. The previous week a arbitration panel in the US capital was established to adjudicate on it.

The company is suing the UK for the money it could have earned if the mine had received permission to commence operations. The public has no idea how much this could amount to. Which individual is acting on its behalf against the British government? An elected representative, and ex-law officer in the Conservative government, the noted patriot the MP. The state passes a law, the high court validates it, then a international entity disputes it through an secretive offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

Concurrently that the tribunal on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case at present, but it seems likely that he will utilise the ISDS mechanism to challenge the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against another European state with similar intent, claiming a colossal sum: equivalent to half of state's yearly income. Among the lawyers acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Mounting Risks

Politicians promised that these events were not possible. Years ago, a government leader, championing the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade agreement upon trade deal and there has never been a case in the past.” A consultant on this matter labelled critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries should be concerned by these lawsuits. Predictions that “once firms start to realise the authority they now possess, they will shift their focus from the weak nations to the developed economies” were dismissed with scepticism.

That threat has come to pass. This year, energy and resource corporations have lodged a record number of cases against nations across the economic spectrum, opposing – like the example of the Whitehaven project – state efforts to prevent climate breakdown. Firms have thus far won $114bn through ISDS, of which energy giants have obtained $84bn. That represents the combined GDP