🔗 Share this article

How do you reckon our political system operates? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that used to be how it operated in the past. Those days are over.

The Rise of Shadow Courts

Today, foreign corporations, along with the wealthy individuals that control them, are able to litigate against elected administrations for the policies they pass, at secret arbitration panels staffed by business advocates. These proceedings take place behind closed doors. In contrast to domestic courts, these tribunals grant no right of appeal or legal review. You or I cannot take a case to them, just as our government, or even enterprises operating from this country. The door is open exclusively to entities registered abroad.

If a tribunal determines that a law or policy may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions, even billions.

These sums constitute not actual losses but compensation the tribunal officials determine the company might otherwise have made. The state may have to rescind the measure. It will be deterred from passing future laws in that area, for fear of facing litigation.

A Process Spiralling Out of Control

Historically high figures of disputes are being filed, as firms observe each other, and hedge funds finance suits for a share of a portion of the settlements. The outcome? Sovereignty and democracy are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the choices enacted by parliaments is that this clause has been inserted – absent public approval, and frequently under a climate of total confidentiality – within bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the High Court. The judge ruled that schemes to excavate the first major coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the Conservative government, which had endorsed the questionable argument that the mine would have no consequence on national carbon targets. The incoming administration then withdrew the permission the previous administration had approved. Today, this success faces being overturned by an foreign court answering to no one but the companies bringing the case.

Last August, a corporate entity whose final controllers are located in the tax haven initiated proceedings against the UK government. The previous week a tribunal in the United States was set up to adjudicate on it.

The company is litigating against the UK for the profits it could have earned if the mine had received permission to proceed. The public has little idea how much this sum represents. Who is acting on its behalf in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The government passes a law, the national judiciary upholds it, then a foreign company challenges it through an unaccountable private court, and a elected official represents its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case at present, but it appears probable that he may employ the tribunal to contest the restrictions the UK levied against him following the war in Ukraine. He has already started suing Luxembourg on these grounds, claiming sixteen billion dollars: equivalent to half of state's annual revenue. Part of the counsel acting for him in that case? the wife of a former prime minister, married to the previous PM.

Legal experts argue that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over democratic administrations may be obstructing the funds Ukraine critically depends on.

Empty Promises and Growing Costs

The public was told that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the biggest and most dangerous of all such treaties, declared: “The UK has signed trade agreement after trade deal and we have never seen a problem in the past.” An adviser on this matter labelled campaigners of “exaggeration … 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 ISDS claims. Cautionary notes that “once firms grasp the power bestowed upon them, they will turn their attention from the weak nations to the strong ones” were greeted by scepticism.

That warning has now materialised. In the current period, energy and resource corporations have lodged a unprecedented number of claims against nations rich and poor, opposing – like the example of the Whitehaven project – official measures to halt climate breakdown. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured $84bn. That is equivalent to the combined GDP