🔗 Share this article

How do you reckon our political system operates? Perhaps similar to this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that was how it operated in the past. Not anymore.

The Advent of Shadow Tribunals

In the modern era, international firms, along with the oligarchs that control them, have the power to sue governments for the policies they pass, at offshore tribunals composed of business advocates. These proceedings are conducted behind closed doors. Differing from national judiciaries, these tribunals provide no right of appeal or judicial review. The general public are unable to file a case to them, and neither can our government, or even businesses headquartered in this country. The door is open solely for corporations based overseas.

When a secret court determines that a government measure may compromise the corporation’s expected profits, it may order financial penalties of vast sums, potentially billions.

These awards are based not on real financial harm but funds the tribunal officials determine the company might otherwise have made. The administration could be forced to rescind the measure. It becomes hesitant to enacting future policies of a similar nature, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being brought, as corporations observe each other, and hedge funds fund legal actions in return for a portion of the takings. The outcome? Democratic sovereignty and popular rule are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the decisions enacted by parliaments is that this provision has been written – without public consent, and typically amid an atmosphere of extreme secrecy – into trade treaties.

A Real-World Example: The Whitehaven Coal Mine

A year ago, a conservation group won a great victory at the High Court. The presiding officer ruled that plans to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have no impact on national carbon targets. The Labour government later cancelled the consent the former government had issued. Today, this victory faces being overturned by an foreign court reporting to exclusively the entities bringing the case.

During August, a corporate entity whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. The previous week a tribunal in Washington DC was set up to hear it.

The claimant is suing the UK for the money it might have made if the mine had been permitted to go ahead. The public has no clear indication how much this sum represents. Who is representing it in opposition to the British government? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Geoffrey Cox. The administration passes a law, the domestic court supports it, then a foreign company contests it through an undemocratic arbitration panel, and a elected official works for its behalf.

The Russian Case

On the same day that the court on the coalmine case was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case at present, but it appears probable that he will utilise the arbitration process to fight the restrictions the UK imposed on him following the Russian aggression. He has started suing Luxembourg on these grounds, demanding $16bn: an amount representing half state's yearly income. Included in the counsel representing him there? the wife of a former prime minister, spouse of the previous PM.

Trade specialists argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Growing Threats

We were assured that such things were not possible. In 2014, a government leader, advocating for the biggest and most dangerous of all investment pacts, told us: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An adviser on this matter accused critics of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms grasp the authority they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were greeted by scepticism.

That warning has come to pass. Recently, fossil fuel and extraction companies have lodged a historic level of cases against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have to date won vast sums through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP