🔗 Share this article

What is your reckon our political system works? Perhaps something like this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. That's it. Well, that used to be how it used to work. Those days are over.

The Advent of Shadow Courts

Today, overseas companies, or the oligarchs that control them, are able to litigate against governments for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are conducted in secret. In contrast to domestic courts, these panels provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, including enterprises operating from this country. They are open exclusively to corporations registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s projected profits, it can award compensation of vast sums, potentially billions.

These awards represent not actual losses but money the tribunal officials determine the company might otherwise have made. The state might be compelled to rescind the measure. It becomes discouraged from enacting future policies along the same lines, for fear of incurring a lawsuit.

A Process Growing Exponentially

Historically high figures of legal actions are being initiated, as companies take cues from each other, and private equity fund legal actions in return for a cut of the settlements. The consequence? Sovereignty and democratic governance are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the rulings enacted by legislatures is that this clause has been written – without democratic mandate, and typically amid conditions of profound opacity – within international trade agreements.

A Real-World Instance: The UK Coal Mine

Twelve months ago, activists secured a significant win at the high court. The justice found that proposals to dig the first major coal mine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine could have no impact on national carbon targets. The Labour government later cancelled the permission the Tories had approved. Now, this legal outcome is under threat by an foreign court accountable to only the companies petitioning it.

Last August, a firm whose final controllers are based in the Cayman Islands filed a lawsuit versus the UK government. The previous week a arbitration panel in the United States was convened to adjudicate on it.

The claimant is suing the UK for the money it could have earned if the mine had been permitted to go ahead. Citizens have no clear indication how much this could amount to. Which individual is serving as its counsel challenging the British government? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The administration makes a decision, the high court supports it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

The Russian Case

Concurrently that the tribunal on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case at present, but it seems likely that he may employ the arbitration process to fight the penalties the UK imposed on him subsequent to the Russian aggression. He has already started suing Luxembourg on these grounds, seeking $16bn: half that government’s annual revenue. Part of the counsel acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars argue that the EU’s procrastination in utilising seized state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over elected governments could be blocking the funds Ukraine critically depends on.

Empty Promises and Growing Threats

The public was told that these scenarios were not possible. In 2014, a former prime minister, promoting the most significant and hazardous of all such treaties, stated: “The UK has signed trade agreement upon trade deal and there has not been a case in the past.” A consultant on this issue described critics of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “once firms grasp the power they now possess, they will redirect their efforts from the poorer states to the strong ones” were greeted by general mockery.

That threat has now materialised. This year, fossil fuel and resource corporations have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – like the example of the UK mine – government attempts to halt climate breakdown. Firms have thus far won vast sums through ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP