🔗 Share this article

How do you perceive our political system functions? It could be along the lines of this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills become law. Statutes are enforced by the courts. End of story. Yet, that used to be how it operated in the past. Not anymore.

The Advent of Shadow Tribunals

Nowadays, overseas companies, along with the billionaires who own them, are able to litigate against governments for the laws they pass, at offshore tribunals staffed by business advocates. These proceedings take place away from public scrutiny. Unlike our courts, these bodies grant no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, and neither can our government, including companies based in this country. The door is open only to businesses registered abroad.

Should an arbitration panel rules that a government measure may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions, even billions.

These awards represent not tangible damages but money the arbitrators decide the company might otherwise have made. The state may have to rescind the measure. It will be hesitant to introducing similar legislation along the same lines, for fear of being sued.

A Process Spiralling Out of Control

Record numbers of legal actions are being initiated, as companies take cues from each other, and private equity finance suits in return for a portion of the takings. The outcome? Democratic sovereignty and democratic governance are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede a country's own laws and the rulings taken by elected bodies is that this provision has been written – absent public approval, and frequently under an atmosphere of extreme secrecy – inside trade treaties.

A Concrete Case: The Whitehaven Coal Mine

A year ago, activists achieved a major legal triumph at the High Court. The presiding officer ruled that proposals to dig the first major coal mine in the UK for 30 years, in northwest England, were illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine would have had zero effect on our carbon budgets. The Labour government subsequently revoked the permission the Tories had granted. Today, this success could be compromised by an offshore tribunal answering to exclusively the companies petitioning it.

In August, a corporate entity whose final controllers are based in the tax haven lodged a claim challenging the UK government. Last week a dispute settlement body in the United States was set up to hear it.

The company is suing the UK for the revenue it might have made if the mine had received permission to go ahead. Citizens have no clear indication how much this sum represents. Who is acting on its behalf challenging the British government? A sitting MP, and ex-law officer in the previous government, the noted patriot the MP. The administration passes a law, the national judiciary upholds it, then a international entity contests it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Challenge

Concurrently that the court on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case to date, but it appears probable that he will utilise the tribunal to challenge the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has previously started suing another European state for this reason, seeking a colossal sum: equivalent to half of state's yearly budget. Part of the lawyers on his side? a prominent lawyer, married to the former British prime minister.

Trade specialists believe that the EU’s procrastination in leveraging immobilised state funds as collateral for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine critically depends on.

False Assurances and Mounting Risks

We were assured that such things could not occur. In 2014, a government leader, advocating for the biggest and most dangerous of all such treaties, stated: “We’ve signed investment treaty upon trade deal and there has never been a case in the past.” An adviser on this issue labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “as corporations grasp the authority bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were greeted by scepticism.

That warning has come to pass. In the current period, energy and extraction companies have filed a unprecedented number of cases against nations across the economic spectrum, challenging – like the example of the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured the majority. That represents the combined GDP