🔗 Share this article

How do you understand our political system operates? Maybe something like this. We elect MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. End of story. Well, that used to be how it once functioned. No longer.

The Rise of Shadow Tribunals

Today, overseas companies, along with the billionaires who own them, can sue governments for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are conducted away from public scrutiny. Unlike our courts, these panels grant no right of appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. The door is open exclusively to entities based overseas.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

These awards represent not tangible damages but compensation the panel members decide the company could potentially have made. The administration might be compelled to abandon its policy. It will be discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of cases are being initiated, as corporations observe each other, and hedge funds finance suits for a share of a portion of the takings. The result? National sovereignty and democracy are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the rulings taken by legislatures is that this provision has been incorporated – without public consent, and often in conditions of profound opacity – inside bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

Last year, a conservation group achieved a major legal triumph at the High Court. The judge ruled that plans to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had agreed to the questionable argument that the mine would have zero effect on our carbon budgets. The new government subsequently revoked the permission the former government had issued. Today, this legal outcome is under threat by an offshore tribunal accountable to only the entities petitioning it.

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

The company is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to proceed. We have no idea how much this could amount to. Which individual is acting on its behalf against the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government enacts a policy, the domestic court upholds it, then a foreign company disputes it through an undemocratic arbitration panel, and a elected official acts on its behalf.

The Russian Case

Simultaneously that the tribunal on the coal mine dispute was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case to date, but it seems likely that he will utilise the tribunal to challenge the penalties the UK levied against him after the invasion of Ukraine. He has previously started suing another European state for this reason, demanding sixteen billion dollars: equivalent to half of government’s annual revenue. Among the lawyers on his side? Cherie Blair, married to the previous PM.

Legal experts contend that the EU’s delay in using frozen state funds as guarantee for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over democratic administrations could be blocking the finance Ukraine desperately needs.

False Assurances and Mounting Costs

We were assured that these scenarios were not possible. Years ago, a government leader, promoting the most significant and hazardous of all these agreements, stated: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” A consultant on this matter labelled critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about ISDS claims. Predictions that “as corporations start to realise the power they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning has come to pass. Recently, oil and gas and resource corporations have initiated a historic level of suits against nations across the economic spectrum, challenging – like the example of the UK mine – state efforts to halt environmental catastrophe. Companies have to date won $114bn by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP