🔗 Share this article

Can you reckon our system of government works? Perhaps similar to this. We elect MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. However, that’s how it once functioned. Those days are over.

The Emergence of Shadow Courts

In the modern era, foreign corporations, along with the oligarchs that control them, are able to litigate against governments for the laws they pass, at offshore tribunals made up of business advocates. The cases are held behind closed doors. Unlike our courts, these panels allow no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, or even businesses based in this country. Access is granted only to corporations based overseas.

Should an arbitration panel rules that a law or policy could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

This compensation represent not actual losses but compensation the tribunal officials conclude the company might otherwise have made. The government could be forced to rescind the measure. It will be deterred from enacting future policies of a similar nature, for fear of being sued.

A System Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms observe each other, and investment funds fund legal actions in exchange for a portion of the settlements. The result? National sovereignty and democratic governance are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the decisions taken by parliaments is that this stipulation has been written – absent public approval, and often in a climate of profound opacity – within trade treaties.

A Real-World Instance: The Whitehaven Coalmine

Twelve months ago, a conservation group won a great victory at the High Court. The judge ruled that proposals to excavate the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on national carbon targets. The new government then withdrew the consent the previous administration had approved. Currently, this success could be compromised by an foreign court reporting to exclusively the corporations bringing the case.

During August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim versus the UK government. Last week a arbitration panel in Washington DC was set up to hear it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has no idea how much this sum represents. What legal team is representing it challenging the state? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Geoffrey Cox. The government enacts a policy, the domestic court supports it, then a international entity challenges it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

The Russian Challenge

On the same day that the tribunal on the mining lawsuit was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case so far, but it is highly possible that he’ll use the tribunal to challenge the restrictions the UK imposed on him subsequent to the Russian aggression. He has started suing Luxembourg with similar intent, seeking $16bn: half that state's yearly budget. Among the legal team acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars contend that the EU’s delay in using frozen Russian assets as security for its financial support package stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over elected governments might be preventing the finance Ukraine desperately needs.

Misleading Claims and Mounting Risks

The public was told that such things could not occur. Years ago, a former prime minister, championing the biggest and most dangerous of all such treaties, stated: “We’ve signed trade agreement upon trade deal and we have never seen a problem in the past.” An adviser on this matter described activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “once firms grasp the authority bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were met with widespread derision.

That prediction is now a reality. This year, oil and gas and resource corporations have initiated a record number of claims against nations both wealthy and developing, challenging – similar to the UK mine – official measures to prevent climate breakdown. Companies have to date won vast sums via ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP