🔗 Share this article

Can you understand our system of government works? Perhaps something like this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that was how it used to work. Those days are over.

The Rise of Shadow Courts

In the modern era, foreign corporations, or the billionaires that control them, have the power to sue governments for the regulations they pass, at private courts made up of corporate lawyers. These proceedings take place in secret. Differing from national judiciaries, these bodies allow no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even businesses operating from this country. The door is open only to corporations operating from foreign soil.

Should an arbitration panel rules that a government measure could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These awards represent not tangible damages but compensation the tribunal officials decide the company would perhaps have made. The administration could be forced to abandon its policy. It will be discouraged from introducing similar legislation in that area, worried about facing litigation.

A Process Running Rampant

Record numbers of disputes are being brought, as corporations take cues from each other, and hedge funds finance suits in return for a portion of the awards. The outcome? Sovereignty and democracy are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the rulings taken by parliaments is that this stipulation has been written – without public consent, and frequently under conditions of total confidentiality – within bilateral investment treaties.

A Specific Instance: The Cumbrian Coalmine

Last year, activists secured a significant win at the high court. The presiding officer ruled that schemes to open the first deep coalmine in the UK for three decades, in northwest England, were unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine could have no impact on national carbon targets. The Labour government subsequently revoked the consent the previous administration had approved. Now, this victory is under threat by an offshore tribunal accountable to no one but the companies bringing the case.

During August, a corporate entity whose ultimate owners reside in the offshore financial centre filed a lawsuit versus the UK government. Recently a dispute settlement body in the US capital was established to adjudicate on it.

This firm is suing the UK for the profits it could have earned if the mine had been allowed to commence operations. Citizens have no idea how much this sum represents. Who is representing it against the British government? A member of parliament, and former attorney-general in the Conservative government, that great patriot the MP. The administration makes a decision, the domestic court upholds it, then a international entity challenges it through an secretive offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Case

Concurrently that the panel on the coal mine dispute was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to contest the sanctions the UK enacted against him following the Russian aggression. He has already started suing Luxembourg for this reason, demanding a colossal sum: an amount representing half state's yearly income. Among the legal team acting for him in that case? Cherie Blair, spouse of the former British prime minister.

Trade specialists contend that the EU’s procrastination in utilising seized oligarchs' funds as collateral for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine critically depends on.

Misleading Claims and Growing Threats

We were assured that these scenarios could not occur. Years ago, a senior politician, championing the biggest and most dangerous of all these agreements, told us: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this matter accused activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies start to realise the power they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were met with widespread derision.

That prediction has come to pass. In the current period, oil and gas and mining firms have lodged a unprecedented number of suits against nations both wealthy and developing, opposing – similar to the Whitehaven project – state efforts to halt climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP