🔗 Share this article

Can you understand our democratic process functions? Perhaps something like this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Statutes is maintained by the courts. Simple as that. Well, that was how it once functioned. Not anymore.

The Emergence of Shadow Courts

In the modern era, overseas companies, and the wealthy individuals that control them, can sue elected administrations for the policies they pass, at secret arbitration panels made up of corporate lawyers. The cases are conducted away from public scrutiny. In contrast to domestic courts, these panels provide no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. They are open exclusively to corporations registered abroad.

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

These sums are based not on actual losses but money the arbitrators determine the company might otherwise have made. The administration might be compelled to abandon its policy. It becomes discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being initiated, as companies observe each other, and hedge funds finance suits in return for a share of the settlements. The outcome? Democratic sovereignty and popular rule are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the rulings taken by legislatures is that this provision has been incorporated – without public consent, and typically amid an atmosphere of total confidentiality – inside international trade agreements.

A Concrete Instance: The Cumbrian Coal Mine

Last year, activists secured a significant win at the High Court. The presiding officer found that proposals to excavate the first new deep coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine could have zero effect on national carbon targets. The Labour government subsequently revoked the consent the previous administration had granted. Today, this success faces being overturned by an foreign court answering to exclusively the companies petitioning it.

During August, a corporate entity whose ultimate owners reside in the offshore financial centre lodged a claim challenging the UK government. Recently a tribunal in the United States was convened to adjudicate on it.

This firm is suing the UK for the money it could have earned if the mine had been permitted to commence operations. We have little idea how much this sum represents. What legal team is acting on its behalf challenging the state? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a elected official works for its behalf.

A Sanctions Lawsuit

Concurrently that the court on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know scarce of the case to date, but it is highly possible that he’ll use the arbitration process to fight the sanctions the UK enacted against him after the invasion of Ukraine. He has already filed a claim against a small nation with similar intent, demanding a colossal sum: half that state's yearly income. Among the lawyers on his side? a prominent lawyer, wife of the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its financial support package stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Risks

Politicians promised that such things could not occur. Previously, a former prime minister, promoting the biggest and most dangerous of all such treaties, told us: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this topic accused critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by these lawsuits. Predictions that “as corporations begin to understand the power they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with scepticism.

That warning has come to pass. This year, fossil fuel and mining firms have initiated a historic level of claims against nations across the economic spectrum, contesting – similar to the Whitehaven project – official measures to stop environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured $84bn. That equates to the combined GDP