🔗 Share this article

How do you perceive our system of government functions? It could be similar to this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. Yet, that was how it used to work. Those days are over.

The Emergence of Shadow Courts

Today, foreign corporations, along with the oligarchs who own them, can sue elected administrations for the regulations they pass, at offshore tribunals made up of business advocates. These proceedings take place behind closed doors. Unlike our courts, these bodies provide no opportunity to appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, including businesses headquartered in this country. They are open exclusively to businesses registered abroad.

Should an arbitration panel finds that a law or policy could harm the corporation’s expected profits, it may order compensation of hundreds of millions, running into billions.

This compensation constitute not actual losses but funds the tribunal officials determine the company could potentially have made. The state may have to drop the legislation. It will be deterred from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies take cues from each other, and investment funds finance suits in exchange for a share of the awards. The consequence? Sovereignty and popular rule are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the choices enacted by legislatures is that this provision has been written – absent public approval, and often in conditions of profound opacity – into international trade agreements.

A Concrete Instance: The UK Coal Mine

Twelve months ago, environmental campaigners won a great victory at the high court. The presiding officer determined that plans to dig the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine could have no consequence on climate commitments. The new government subsequently revoked the consent the previous administration had issued. Currently, this success could be compromised by an offshore tribunal accountable to no one but the corporations bringing the case.

During August, a firm whose ultimate owners reside in the Cayman Islands filed a lawsuit versus the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had received permission to go ahead. We have no clear indication how much this might be. What legal team is representing it challenging the state? A sitting MP, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a foreign company challenges it through an secretive private court, and a member of our parliament represents its behalf.

A Sanctions Case

Concurrently that the panel on the mining lawsuit was convened, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case to date, but it is highly possible that he may employ the ISDS mechanism to contest the restrictions the UK levied against him following the invasion of Ukraine. He has previously filed a claim against a small nation with similar intent, claiming sixteen billion dollars: equivalent to half of nation's annual revenue. Part of the counsel acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

Legal experts argue that the EU’s delay in leveraging immobilised state funds as collateral for its financial support package arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over elected governments may be obstructing the money Ukraine urgently requires.

Misleading Claims and Mounting Threats

Politicians promised that these events could not occur. Years ago, a senior politician, championing the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade deal upon trade deal and there has not been a problem in the past.” A consultant on this matter labelled activists of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “as corporations begin to understand the power bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were met with general mockery.

That warning is now a reality. In the current period, oil and gas and extraction companies have filed a record number of cases against nations rich and poor, contesting – like the example of the Whitehaven project – state efforts to prevent environmental catastrophe. Companies have to date won vast sums through ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP