🔗 Share this article

Can you understand our political system works? It could be along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills become law. Legislation are enforced by the courts. End of story. Yet, that used to be how it used to work. Not anymore.

The Rise of Shadow Tribunals

In the modern era, international firms, or the oligarchs behind them, can sue governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. The cases take place away from public scrutiny. In contrast to domestic courts, these tribunals grant no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted solely for businesses operating from foreign soil.

Should an arbitration panel rules that a law or policy could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, even billions.

These awards are based not on tangible damages but money the tribunal officials determine the company could potentially have made. The state may have to drop the legislation. It is deterred from passing future laws of a similar nature, worried about incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of disputes are being brought, as corporations observe each other, and private equity fund legal actions in exchange for a share of the takings. The result? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the rulings made by parliaments is that this stipulation has been inserted – without public consent, and typically amid a climate of profound opacity – within trade treaties.

A Specific Case: The Whitehaven Coalmine

Last year, a conservation group secured a significant win at the high court. The presiding officer found that plans to dig the first deep coalmine in the UK for 30 years, in northwest England, had been illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have no impact on climate commitments. The new government subsequently revoked the consent the previous administration had granted. Now, this legal outcome faces being overturned by an secret arbitration panel answering to no one but the entities filing the suit.

During August, a corporate entity whose final controllers are located in the tax haven initiated proceedings versus the UK government. Recently a tribunal in the US capital was set up to consider the case.

This firm is litigating against the UK for the profits it could have earned if the mine had received permission to commence operations. Citizens have no clear indication how much this sum represents. Which individual is representing it challenging the state? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot the MP. The state enacts a policy, the high court upholds it, then a overseas corporation disputes it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Simultaneously that the panel on the coal mine dispute was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK levied against him following the Russian aggression. He has previously started suing Luxembourg on these grounds, claiming a colossal sum: half that state's yearly income. Included in the legal team acting for him in that case? the wife of a former prime minister, married to the former British prime minister.

Legal experts contend that the EU’s procrastination in using frozen state 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 trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the money Ukraine urgently requires.

False Assurances and Growing Risks

We were assured that such things could not occur. In 2014, a senior politician, championing the most significant and hazardous of all investment pacts, declared: “The UK has signed trade deal after trade deal and we have never seen a problem in the past.” A consultant on this issue labelled activists of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Cautionary notes that “once firms grasp the authority bestowed upon them, they will shift their focus from the poorer states to the developed economies” were greeted by general mockery.

That threat has now materialised. In the current period, energy and extraction companies have filed a record number of cases against nations rich and poor, opposing – similar to the Whitehaven project – state efforts to stop climate breakdown. Companies have so far won vast sums through ISDS, of which oil majors have secured the majority. That represents the combined GDP