🔗 Share this article

Can you understand our political system functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills become law. Statutes is upheld by the courts. That's it. Well, that was how it operated in the past. Not anymore.

The Emergence of Shadow Courts

In the modern era, overseas companies, along with the wealthy individuals who own them, have the power to sue governments for the laws they pass, at offshore tribunals made up of commercial attorneys. The cases are held away from public scrutiny. Differing from national judiciaries, these tribunals allow no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. They are open only to businesses registered abroad.

When a secret court rules that a legislative action might diminish the corporation’s expected profits, it may order compensation of hundreds of millions, running into billions.

These awards represent not tangible damages but funds the tribunal officials decide the company might otherwise have made. The state may have to abandon its policy. It will be hesitant to passing future laws of a similar nature, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of cases are being filed, as companies learn from each other, and investment funds bankroll lawsuits for a share of a cut of the awards. The consequence? Sovereignty and popular rule are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the decisions made by parliaments is that this stipulation has been written – without democratic mandate, and frequently under an atmosphere of total confidentiality – within bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the senior court. The judge found that plans to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The Labour government subsequently revoked the licence the Tories had granted. Today, this victory is under threat by an offshore tribunal answering to no one but the corporations bringing the case.

In August, a company whose ultimate owners reside in the offshore financial centre lodged a claim challenging the UK government. Recently a arbitration panel in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to go ahead. We have little idea how much this sum represents. Who is acting on its behalf against the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the high court validates it, then a foreign company disputes it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coal mine dispute was convened, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case to date, but it appears probable that he may employ the tribunal to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has started suing Luxembourg with similar intent, claiming sixteen billion dollars: half that state's yearly income. Included in the lawyers acting for him in that case? a prominent lawyer, wife of the previous PM.

Legal experts contend that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Risks

We were assured that these scenarios were not possible. In 2014, a government leader, advocating for the biggest and most dangerous of all investment pacts, stated: “The UK has signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this matter described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries had to worry about such legal actions. Predictions that “when companies begin to understand the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with general mockery.

That prediction is now a reality. This year, fossil fuel and extraction companies have lodged a unprecedented number of claims against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – official measures to prevent climate breakdown. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained the majority. That represents the combined GDP