🔗 Share this article

How do you understand our political system operates? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. Simple as that. Well, that was how it once functioned. Those days are over.

The Rise of Shadow Courts

Nowadays, foreign corporations, or the billionaires that control them, have the power to sue governments for the policies they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are held behind closed doors. In contrast to domestic courts, these bodies provide no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, including companies based in this country. Access is granted exclusively to entities based overseas.

If a tribunal rules that a legislative action may compromise the corporation’s projected profits, it may order damages of hundreds of millions of pounds, even billions.

These awards constitute not actual losses but compensation the tribunal officials determine the company would perhaps have made. The government could be forced to abandon its policy. It is hesitant to passing future laws along the same lines, due to the risk of being sued.

A Process Spiralling Out of Control

Historically high figures of legal actions are being brought, as firms observe each other, and hedge funds fund legal actions in exchange for a portion of the settlements. The outcome? National sovereignty and popular rule are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the decisions made by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Concrete Instance: The Whitehaven Coalmine

A year ago, a conservation group secured a significant win at the high court. The presiding officer found that proposals to dig the first deep coalmine in the UK for a generation, in northwest England, were illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have had zero effect on our carbon budgets. The Labour government then withdrew the licence the former government had issued. Currently, this victory is under threat by an secret arbitration panel accountable to exclusively the companies petitioning it.

Last August, a company whose final controllers are located in the tax haven initiated proceedings versus the UK government. Recently a dispute settlement body in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has no clear indication how much this could amount to. Which individual is serving as its counsel against the UK administration? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the high court supports it, then a overseas corporation disputes it through an undemocratic private court, and a sitting MP works for its behalf.

The Russian Challenge

Concurrently that the tribunal on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it is highly possible that he may employ the tribunal to contest the penalties the UK levied against him after the Russian aggression. He has previously filed a claim against a small nation for this reason, demanding a colossal sum: an amount representing half government’s yearly income. Included in the counsel representing him there? a prominent lawyer, spouse of the previous PM.

Legal experts believe that the EU’s delay in using frozen state funds as security for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over elected governments might be preventing the finance Ukraine urgently requires.

Misleading Claims and Mounting Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a government leader, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade deal after trade deal and there has not been a case in the past.” An expert on this matter labelled activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “once firms grasp the influence they now possess, they will shift their focus from the poorer states to the wealthy nations” were greeted by scepticism.

That threat has now materialised. This year, energy and extraction companies have lodged a historic level of claims against nations across the economic spectrum, challenging – similar to the Whitehaven project – official measures to prevent global warming. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP