🔗 Share this article

How do you perceive our political system functions? It could be something like this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. End of story. However, that was how it operated in the past. Those days are over.

The Advent of Shadow Tribunals

Today, foreign corporations, or the billionaires behind them, are able to litigate against nation states for the laws they pass, at private courts staffed by business advocates. The cases are conducted in secret. Unlike our courts, these bodies provide no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, or even businesses operating from this country. They are open only to corporations registered abroad.

If a tribunal determines that a legislative action could harm the corporation’s anticipated profits, it may order financial penalties of vast sums, even billions.

These awards constitute not actual losses but funds the panel members decide the company might otherwise have made. The administration might be compelled to rescind the measure. It will be discouraged from enacting future policies along the same lines, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being filed, as corporations take cues from each other, and hedge funds bankroll lawsuits in exchange for a share of the awards. The outcome? National sovereignty and democracy are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the choices made by elected bodies is that this provision has been written – without democratic mandate, and typically amid conditions of total confidentiality – into trade treaties.

A Specific Instance: The Whitehaven Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that proposals to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine would have had no consequence on our carbon budgets. The new government subsequently revoked the consent the previous administration had issued. Today, this success is under threat by an offshore tribunal answering to only the entities petitioning it.

In August, a company whose beneficial owners are located in the offshore financial centre initiated proceedings challenging the UK government. The previous week a arbitration panel in the US capital was convened to consider the case.

This firm is litigating against 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 might be. Which individual is representing it against the state? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot the MP. The state enacts a policy, the domestic court supports it, then a foreign company contests it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the mining lawsuit was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case at present, but it appears probable that he may employ the tribunal to challenge the penalties the UK imposed on him subsequent to the war in Ukraine. He has already started suing a small nation for this reason, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Among the lawyers acting for him in that case? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s delay in leveraging immobilised state funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine critically depends on.

False Assurances and Growing Threats

Politicians promised that these events could not occur. Years ago, a government leader, advocating for the largest and riskiest of all investment pacts, declared: “The UK has signed trade agreement after trade deal and there has not been a case in the past.” An expert on this matter labelled critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by such legal actions. Warnings that “when companies grasp the authority bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That prediction has come to pass. Recently, energy and resource corporations have lodged a record number of cases against nations both wealthy and developing, contesting – like the example of the UK mine – official measures to prevent climate breakdown. Corporations have so far won $114bn by using ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP