🔗 Share this article

What is your understand our political system works? Perhaps something like this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. The law is upheld by the courts. End of story. Well, that was how it used to work. No longer.

The Rise of Shadow Courts

In the modern era, foreign corporations, or the billionaires who own them, are able to litigate against governments for the laws they pass, at private courts composed of corporate lawyers. The cases are held away from public scrutiny. In contrast to domestic courts, these panels provide no opportunity to appeal or judicial review. The general public cannot take a case to them, just as our government, or even companies operating from this country. They are open only to businesses based overseas.

Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it may order financial penalties of vast sums, potentially billions.

This compensation are based not on tangible damages but compensation the arbitrators determine the company could potentially have made. The state may have to rescind the measure. It becomes hesitant to introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A System Running Rampant

Historically high figures of legal actions are being filed, as companies learn from each other, and hedge funds bankroll lawsuits for a share of a portion of the takings. The result? National sovereignty and democracy are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the rulings taken by parliaments is that this provision has been inserted – without democratic mandate, and frequently under conditions of profound opacity – inside bilateral investment treaties.

A Concrete Case: The Cumbrian Coalmine

Last year, activists won a great victory at the high court. The presiding officer ruled that schemes to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have had zero effect on climate commitments. The new government then withdrew the licence the Tories had approved. Today, this victory faces being overturned by an secret arbitration panel accountable to only the entities filing the suit.

During August, a company whose final controllers are based in the offshore financial centre initiated proceedings against the UK government. Recently a arbitration panel in the US capital was established to adjudicate on it.

The claimant is suing the UK for the revenue it might have made if the mine had received permission to commence operations. We have no idea how much this might be. Who is acting on its behalf challenging the state? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court validates it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case to date, but it seems likely that he’ll use the tribunal to fight the restrictions the UK imposed on him subsequent to the war in Ukraine. He has previously filed a claim against a small nation on these grounds, claiming $16bn: an amount representing half state's yearly budget. Included in the counsel acting for him in that case? Cherie Blair, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in using frozen oligarchs' funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations may be obstructing the finance Ukraine desperately needs.

False Assurances and Escalating Costs

Politicians promised that these events were not possible. Previously, a government leader, championing the biggest and most dangerous of all such treaties, stated: “The UK has signed investment treaty after trade deal and there has not been a case in the past.” An adviser on this topic labelled activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the power they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were met with scepticism.

That warning has come to pass. Recently, oil and gas and mining firms have lodged a record number of claims against nations rich and poor, contesting – like the example of the UK mine – state efforts to halt environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP