🔗 Share this article

What is your reckon our political system operates? Perhaps something like this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. Well, that’s how it operated in the past. No longer.

The Emergence of Shadow Tribunals

Today, foreign corporations, or the billionaires that control them, can sue elected administrations for the regulations they pass, at private courts made up of commercial attorneys. These proceedings are held in secret. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. They are open exclusively to entities registered abroad.

Should an arbitration panel finds that a legislative action could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These awards constitute not tangible damages but compensation the arbitrators conclude the company might otherwise have made. The administration could be forced to drop the legislation. It will be hesitant to introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as corporations learn from each other, and private equity bankroll lawsuits in return for a portion of the awards. The result? National sovereignty and popular rule are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the choices enacted by parliaments is that this clause has been incorporated – without public consent, and typically amid conditions of extreme secrecy – within international trade agreements.

A Specific Instance: The Whitehaven Coalmine

Last year, activists secured a significant win at the High Court. The judge determined that schemes to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no impact on climate commitments. The Labour government later cancelled the permission the Tories had granted. Today, this legal outcome could be compromised by an offshore tribunal answering to no one but the companies petitioning it.

Last August, a corporate entity whose ultimate owners reside in the offshore financial centre lodged a claim against the UK government. Recently a tribunal in the United States was convened to hear it.

The company is seeking compensation from the UK for the money it would have generated if the mine had been allowed to commence operations. The public has little idea how much this might be. What legal team is serving as its counsel challenging the UK administration? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a foreign company contests it through an unaccountable private court, and a member of our parliament represents its behalf.

The Russian Challenge

Simultaneously that the panel on the mining lawsuit was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case to date, but it is highly possible that he will utilise the ISDS mechanism to fight the penalties the UK enacted against him following the invasion of Ukraine. He has already filed a claim against a small nation for this reason, seeking a colossal sum: half that government’s yearly income. Among the legal team representing him there? Cherie Blair, wife of the previous PM.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over democratic administrations might be preventing the funds Ukraine urgently requires.

Misleading Claims and Escalating Costs

The public was told that these events were not possible. Years ago, a government leader, advocating for the largest and riskiest of all these agreements, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter described critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “once firms grasp the influence bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were met with widespread derision.

That warning has come to pass. In the current period, oil and gas and resource corporations have lodged a record number of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to stop global warming. Firms have to date won $114bn through ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP