🔗 Share this article

Can you reckon our system of government functions? Maybe something like this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills become law. Legislation is upheld by the courts. That's it. Well, that used to be how it once functioned. Those days are over.

The Advent of Shadow Tribunals

Nowadays, overseas companies, or the billionaires who own them, can sue elected administrations for the regulations they pass, at offshore tribunals made up of business advocates. These proceedings are held behind closed doors. Unlike our courts, these panels allow no avenue for appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even companies based in this country. Access is granted exclusively to corporations registered abroad.

When a secret court rules that a legislative action could harm the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

This compensation constitute not tangible damages but funds the tribunal officials determine the company might otherwise have made. The state could be forced to abandon its policy. It is deterred from passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of disputes are being initiated, as companies learn from each other, and hedge funds bankroll lawsuits in return for a cut of the takings. The result? Sovereignty and democracy are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the decisions taken by elected bodies is that this stipulation has been incorporated – without public consent, and typically amid conditions of profound opacity – within bilateral investment treaties.

A Concrete Example: The Cumbrian Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the high court. The presiding officer determined that proposals to excavate the first new deep coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The new government subsequently revoked the licence the previous administration had granted. Currently, this success faces being overturned by an offshore tribunal reporting to only the entities filing the suit.

In August, a firm whose beneficial owners reside in the offshore financial centre lodged a claim versus the UK government. The previous week a dispute settlement body in Washington DC was set up to consider the case.

The company is suing the UK for the money it could have earned if the mine had been allowed to commence operations. Citizens have no idea how much this could amount to. Which individual is serving as its counsel in opposition to the British government? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the high court upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case to date, but it appears probable that he will utilise the arbitration process to contest the sanctions the UK enacted against him following the war in Ukraine. He has started suing Luxembourg for this reason, seeking a colossal sum: half that nation's annual revenue. Among the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists contend that the EU’s procrastination in utilising seized state funds as security for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over democratic administrations may be obstructing the money Ukraine urgently requires.

Misleading Claims and Growing Costs

We were assured that these scenarios wouldn’t happen. Previously, a former prime minister, advocating for the biggest and most dangerous of all these agreements, told us: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” An adviser on this matter labelled critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the influence they now possess, they will shift their focus from the weak nations to the strong ones” were met with widespread derision.

That threat has now materialised. Recently, fossil fuel and mining firms have filed a unprecedented number of cases against nations rich and poor, opposing – like the example of the Whitehaven project – official measures to halt climate breakdown. Corporations have so far won $114bn via ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP