🔗 Share this article

Can you understand our system of government operates? It could be along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills pass into law. Legislation is upheld by the courts. End of story. Yet, that used to be how it operated in the past. Those days are over.

The Advent of Shadow Courts

Nowadays, overseas companies, or the oligarchs that control them, are able to litigate against governments for the regulations they pass, at offshore tribunals composed of commercial attorneys. Such disputes are held in secret. Unlike our courts, these panels grant no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, or even companies based in this country. They are open only to corporations operating from foreign soil.

When a secret court rules that a government measure could harm the corporation’s expected profits, it has the power to grant compensation of vast sums, running into billions.

These sums constitute not real financial harm but money the arbitrators conclude the company could potentially have made. The government could be forced to rescind the measure. It will be discouraged from enacting future policies along the same lines, for fear of being sued.

A System Running Rampant

Historically high figures of legal actions are being brought, as companies observe each other, and investment funds bankroll lawsuits in exchange for a portion of the settlements. The consequence? Democratic sovereignty and democracy are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the decisions taken by elected bodies is that this stipulation has been inserted – without public consent, and typically amid a climate of total confidentiality – into trade treaties.

A Real-World Case: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the high court. The justice ruled that schemes to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no impact on our carbon budgets. The Labour government later cancelled the consent the previous administration had approved. Now, this legal outcome faces being overturned by an offshore tribunal accountable to only the corporations filing the suit.

During August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings challenging the UK government. Last week a tribunal in Washington DC was established to hear it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Which individual is serving as its counsel in opposition to the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a overseas corporation contests it through an unaccountable private court, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coalmine case was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he will utilise the ISDS mechanism to challenge the penalties the UK enacted against him following the invasion of Ukraine. He has filed a claim against another European state with similar intent, demanding sixteen billion dollars: equivalent to half of nation's yearly income. Part of the legal team representing him there? the wife of a former prime minister, wife of the former British prime minister.

International law scholars believe that the EU’s hesitation in using frozen state funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, secretive influence over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Risks

Politicians promised that these scenarios wouldn’t happen. Previously, a government leader, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade deal upon trade deal and there has not been a case in the past.” An adviser on this topic accused critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by ISDS claims. Warnings that “once firms start to realise the power they’ve been granted, they will turn their attention from the weak nations to the developed economies” were met with scepticism.

That prediction has come to pass. In the current period, fossil fuel and resource corporations have lodged a unprecedented number of cases against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – state efforts to prevent global warming. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP