🔗 Share this article

What is your reckon our political system functions? Maybe similar to this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills pass into law. The law are enforced by the courts. That's it. Well, that’s how it once functioned. Those days are over.

The Rise of Shadow Tribunals

In the modern era, international firms, along with the wealthy individuals who own them, are able to litigate against nation states for the laws they pass, at private courts staffed by corporate lawyers. Such disputes are held in secret. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even companies based in this country. The door is open solely for entities registered abroad.

Should an arbitration panel finds that a government measure may compromise the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

This compensation constitute not actual losses but compensation the panel members decide the company might otherwise have made. The state could be forced to rescind the measure. It becomes deterred from passing future laws along the same lines, for fear of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being filed, as corporations take cues from each other, and hedge funds fund legal actions for a share of a portion of the awards. The outcome? Democratic sovereignty and popular rule are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the decisions taken by legislatures is that this provision has been incorporated – without democratic mandate, and often in conditions of extreme secrecy – within trade treaties.

A Specific Case: The UK Coal Mine

A year ago, a conservation group 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 three decades, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the bizarre claim that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the permission the Tories had granted. Currently, this victory faces being overturned by an secret arbitration panel reporting to no one but the entities bringing the case.

Last August, a firm whose beneficial owners reside in the offshore financial centre filed a lawsuit against the UK government. Recently a dispute settlement body in the United States was set up to hear it.

The claimant is suing the UK for the money it might have made if the mine had received permission to proceed. Citizens have no clear indication how much this sum represents. Who is representing it against the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, that great patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a foreign company disputes it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Case

Concurrently that the tribunal on the mining lawsuit was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know nothing of the case at present, but it seems likely that he will utilise the arbitration process to challenge the sanctions the UK imposed on him following the war in Ukraine. He has already initiated proceedings against a small nation with similar intent, seeking $16bn: half that government’s yearly budget. Part of the counsel on his side? the wife of a former prime minister, married to the former British prime minister.

International law scholars contend that the EU’s procrastination in using frozen oligarchs' funds as collateral for its financial support package is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the money Ukraine urgently requires.

Misleading Claims and Growing Threats

Politicians promised that these scenarios wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all these agreements, stated: “We’ve signed trade deal after trade deal and we have never seen a case in the past.” An expert on this matter accused campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “once firms begin to understand the authority bestowed upon them, they will shift their focus from the weak nations to the developed economies” were dismissed with scepticism.

That warning is now a reality. This year, energy and resource corporations have initiated a record number of cases against nations rich and poor, challenging – like the example of the UK mine – official measures to halt environmental catastrophe. Firms have so far won vast sums by using ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP