🔗 Share this article

Can you perceive our system of government functions? Perhaps something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills become law. The law is upheld by the courts. That's it. Well, that was how it used to work. Those days are over.

The Emergence of Shadow Courts

Today, overseas companies, or the oligarchs that control them, can sue elected administrations for the policies they pass, at secret arbitration panels composed of corporate lawyers. Such disputes take place away from public scrutiny. Differing from national judiciaries, these tribunals grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even enterprises operating from this country. They are open only to businesses registered abroad.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it can award damages of hundreds of millions of pounds, potentially billions.

This compensation are based not on actual losses but compensation the arbitrators determine the company might otherwise have made. The government may have to rescind the measure. It is discouraged from passing future laws in that area, for fear of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of legal actions are being filed, as corporations observe each other, and hedge funds finance suits in return for a portion of the awards. The result? Sovereignty and democratic governance are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the choices taken by elected bodies is that this clause has been incorporated – absent public approval, and frequently under conditions of profound opacity – into international trade agreements.

A Concrete Case: The UK Coal Mine

Last year, a conservation group won a great victory at the high court. The justice ruled that proposals to excavate the first major coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine could have zero effect on national carbon targets. The Labour government subsequently revoked the permission the Tories had granted. Now, this victory could be compromised by an secret arbitration panel answering to no one but the companies bringing the case.

During August, a corporate entity whose final controllers are located in the tax haven filed a lawsuit challenging the UK government. Last week a tribunal in Washington DC was set up to consider the case.

This firm is litigating against the UK for the profits it would have generated if the mine had been allowed to go ahead. We have no idea how much this might be. Who is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The administration makes a decision, the national judiciary upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a elected official represents its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case so far, but it seems likely that he will utilise the arbitration process to fight the sanctions the UK enacted against him following the invasion of Ukraine. He has initiated proceedings against another European state with similar intent, demanding $16bn: half that nation's yearly income. Included in the legal team on his side? Cherie Blair, married to the previous PM.

Legal experts contend that the EU’s procrastination in leveraging immobilised Russian assets as security for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over elected governments may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Escalating Costs

The public was told that these events were not possible. In 2014, a senior politician, promoting the biggest and most dangerous of all these agreements, stated: “The UK has signed investment treaty after trade deal and there has not been a case in the past.” A consultant on this topic accused activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “as corporations start to realise the power they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with scepticism.

That warning has come to pass. This year, energy and mining firms have lodged a unprecedented number of suits against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Companies have thus far won vast sums via ISDS, of which energy giants have secured $84bn. That equates to the combined GDP