🔗 Share this article

Can you understand our political system operates? Maybe something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills become law. Legislation are enforced by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Advent of Shadow Tribunals

In the modern era, foreign corporations, or the billionaires who own them, can sue nation states for the regulations they pass, at secret arbitration panels composed of commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these tribunals provide no avenue for appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even enterprises operating from this country. They are open only to entities registered abroad.

When a secret court determines that a law or policy might diminish the corporation’s expected profits, it may order compensation of hundreds of millions, potentially billions.

These sums constitute not real financial harm but funds the arbitrators decide the company might otherwise have made. The administration could be forced to rescind the measure. It becomes discouraged from enacting future policies in that area, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of cases are being brought, as companies learn from each other, and private equity bankroll lawsuits in exchange for a cut of the awards. The result? Democratic sovereignty and popular rule are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the rulings made by elected bodies is that this clause has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – within trade treaties.

A Specific Case: The UK Coalmine

Last year, activists secured a significant win at the High Court. The justice determined that plans to dig the first deep coalmine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on climate commitments. The incoming administration subsequently revoked the consent the former government had approved. Now, this legal outcome could be compromised by an foreign court reporting to exclusively the entities petitioning it.

In August, a corporate entity whose final controllers are located in the tax haven initiated proceedings versus the UK government. Last week a arbitration panel in Washington DC was convened to hear it.

This firm is litigating against the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have little idea how much this could amount to. What legal team is acting on its behalf challenging the state? A member of parliament, and ex-law officer in the Conservative government, that great patriot the MP. The government enacts a policy, the domestic court supports it, then a foreign company challenges it through an secretive offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Case

Simultaneously that the panel on the mining lawsuit was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case so far, but it appears probable that he will utilise the tribunal to contest the restrictions the UK levied against him subsequent to the Russian aggression. He has initiated proceedings against another European state for this reason, claiming sixteen billion dollars: half that government’s yearly budget. Among the legal team acting for him in that case? a prominent lawyer, married to the ex-UK leader.

International law scholars argue that the EU’s hesitation in using frozen state funds as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over democratic administrations could be blocking the funds Ukraine critically depends on.

Misleading Claims and Mounting Costs

We were assured that such things wouldn’t happen. In 2014, a senior politician, championing the most significant and hazardous of all such treaties, told us: “We’ve signed investment treaty after trade deal and we have never seen a case in the past.” An adviser on this issue described campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations needed to fear these lawsuits. Warnings that “as corporations begin to understand the authority they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with general mockery.

That prediction is now a reality. This year, energy and resource corporations have lodged a historic level of suits against nations across the economic spectrum, challenging – like the example of the Whitehaven project – state efforts to prevent global warming. Corporations have thus far won $114bn by using ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP