🔗 Share this article

Can you understand our political system operates? Maybe similar to this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. Yet, that used to be how it used to work. Those days are over.

The Rise of Shadow Courts

Nowadays, overseas companies, or the billionaires who own them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes are held in secret. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. They are open exclusively to businesses based overseas.

If a tribunal finds that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These awards represent not real financial harm but compensation the panel members decide the company might otherwise have made. The administration may have to drop the legislation. It becomes deterred from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A System Growing Exponentially

Record numbers of cases are being filed, as companies take cues from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The result? National sovereignty and democracy are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the decisions made by parliaments is that this provision has been inserted – absent public approval, and frequently under an atmosphere of extreme secrecy – within bilateral investment treaties.

A Specific Case: The UK Coalmine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The justice found that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The Labour government then withdrew the licence the previous administration had approved. Currently, this legal outcome faces being overturned by an secret arbitration panel reporting to only the entities filing the suit.

In August, a company whose beneficial owners are located in the offshore financial centre lodged a claim challenging the UK government. Recently a tribunal in the United States was convened to hear it.

This firm is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. We have no clear indication how much this might be. What legal team is representing it against the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the high court supports it, then a overseas corporation disputes it through an secretive private court, and a member of our parliament represents its behalf.

The Russian Case

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 wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case at present, but it seems likely that he will utilise the arbitration process to contest the sanctions the UK imposed on him following the Russian aggression. He has previously filed a claim against another European state with similar intent, claiming a colossal sum: equivalent to half of nation's yearly income. Among the counsel representing him there? the wife of a former prime minister, married to the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised state funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine critically depends on.

False Assurances and Growing Threats

The public was told that these scenarios wouldn’t happen. In 2014, a government leader, promoting the most significant and hazardous of all investment pacts, stated: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” An expert on this issue accused critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that exclusively weaker states should be concerned by such legal actions. Warnings that “when companies begin to understand the authority they now possess, they will shift their focus from the vulnerable countries to the developed economies” were met with general mockery.

That warning is now a reality. In the current period, energy and mining firms have lodged a unprecedented number of claims against nations rich and poor, challenging – like the example of the UK mine – official measures to stop climate breakdown. Corporations have so far won vast sums via ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP