🔗 Share this article

Can you reckon our system of government functions? Perhaps something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. That's it. However, that’s how it once functioned. No longer.

The Emergence of Shadow Courts

Nowadays, international firms, or the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at private courts staffed by business advocates. The cases are conducted away from public scrutiny. Unlike our courts, these bodies provide no avenue for appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, including enterprises headquartered in this country. The door is open only to entities operating from foreign soil.

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

These awards represent not tangible damages but compensation the panel members conclude the company could potentially have made. The state may have to drop the legislation. It is hesitant to enacting future policies along the same lines, due to the risk of facing litigation.

A Mechanism Running Rampant

Record numbers of cases are being initiated, as companies take cues from each other, and private equity bankroll lawsuits in exchange for a portion of the awards. The outcome? Sovereignty and popular rule are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the choices enacted by elected bodies is that this stipulation has been inserted – absent public approval, and often in a climate of extreme secrecy – within bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, a conservation group secured a significant win at the high court. The justice ruled that proposals to open the first new deep coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The new government subsequently revoked the licence the previous administration had issued. Now, this victory faces being overturned by an offshore tribunal reporting to only the entities petitioning it.

In August, a corporate entity whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. Last week a tribunal in Washington DC was convened to hear it.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to go ahead. We have no idea how much this could amount to. Which individual is serving as its counsel in opposition to the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary upholds it, then a foreign company disputes it through an undemocratic arbitration panel, and a elected official represents its behalf.

A Sanctions Case

Concurrently that the court on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case so far, but it is highly possible that he will utilise the ISDS mechanism to fight the penalties the UK levied against him following the war in Ukraine. He has already started suing a small nation with similar intent, demanding sixteen billion dollars: equivalent to half of state's yearly budget. Among the lawyers representing him there? the wife of a former prime minister, married to the ex-UK leader.

Trade specialists contend that the EU’s delay in using frozen state funds as security for its financial support package stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over sovereign states could be blocking the finance Ukraine critically depends on.

Empty Promises and Mounting Costs

We were assured that these scenarios could not occur. Previously, a senior politician, championing the most significant and hazardous of all such treaties, told us: “We’ve signed trade agreement upon trade deal and there has not been a case in the past.” A consultant on this issue labelled campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about ISDS claims. Warnings that “once firms begin to understand the authority bestowed upon them, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That threat is now a reality. In the current period, oil and gas and extraction companies have initiated a record number of claims against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – state efforts to prevent global warming. Companies have thus far won vast sums through ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP