🔗 Share this article

How do you understand our political system operates? Maybe along the lines of this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills pass into law. The law are enforced by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, along with the oligarchs that control them, have the power to sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these panels allow no opportunity to appeal or judicial review. The general public cannot take a case to them, nor can our government, or even enterprises headquartered in this country. The door is open solely for entities registered abroad.

If a tribunal rules that a law or policy could harm the corporation’s expected profits, it may order compensation of hundreds of millions, even billions.

This compensation constitute not tangible damages but compensation the arbitrators conclude the company might otherwise have made. The government could be forced to rescind the measure. It becomes discouraged from introducing similar legislation of a similar nature, for fear of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of cases are being brought, as corporations learn from each other, and investment funds fund legal actions in exchange for a cut of the awards. The result? Sovereignty and democracy are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the decisions made by parliaments is that this stipulation has been written – without democratic mandate, and frequently under conditions of profound opacity – inside bilateral investment treaties.

A Specific Example: The Whitehaven Coalmine

A year ago, environmental campaigners secured a significant win at the high court. The judge found that plans to dig the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have no consequence on our carbon budgets. The new government then withdrew the licence the previous administration had granted. Today, this success is under threat by an offshore tribunal accountable to no one but the companies filing the suit.

Last August, a company whose ultimate owners reside in the Cayman Islands filed a lawsuit versus the UK government. The previous week a dispute settlement body in the United States was set up to consider the case.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to proceed. We have no clear indication how much this might be. What legal team is representing it against the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are little of the case to date, but it appears probable that he’ll use the tribunal to contest the penalties the UK imposed on him after the Russian aggression. He has initiated proceedings against a small nation for this reason, demanding sixteen billion dollars: an amount representing half government’s yearly income. Among the lawyers on his side? a prominent lawyer, wife of the ex-UK leader.

Legal experts contend that the EU’s delay in using frozen Russian assets as collateral for its financial support package stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over sovereign states may be obstructing the money Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that such things wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, stated: “We’ve signed trade agreement upon trade deal and there has not been a problem in the past.” A consultant on this topic labelled activists of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about such legal actions. Warnings that “when companies start to realise the influence they now possess, they will turn their attention from the poorer states to the developed economies” were dismissed with widespread derision.

That warning is now a reality. This year, oil and gas and extraction companies have filed a record number of cases against nations across the economic spectrum, contesting – like the example of the Whitehaven project – official measures to halt climate breakdown. Corporations have to date won $114bn via ISDS, of which energy giants have obtained $84bn. That represents the combined GDP