🔗 Share this article

How do you understand our political system functions? Perhaps something like this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Legislation are enforced by the courts. That's it. Yet, that used to be how it used to work. Those days are over.

The Emergence of Shadow Tribunals

In the modern era, overseas companies, or the billionaires behind them, can sue governments for the laws they pass, at secret arbitration panels made up of business advocates. The cases take place away from public scrutiny. Differing from national judiciaries, these panels grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, including companies based in this country. They are open only to corporations based overseas.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions, running into billions.

These awards are based not on tangible damages but compensation the tribunal officials decide the company would perhaps have made. The government might be compelled to rescind the measure. It will be discouraged from introducing similar legislation of a similar nature, due to the risk of being sued.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being initiated, as firms observe each other, and investment funds finance suits in exchange for a cut of the settlements. The consequence? National sovereignty and popular rule are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the rulings taken by elected bodies is that this clause has been written – without democratic mandate, and often in a climate of profound opacity – into trade treaties.

A Real-World Case: The Cumbrian Coal Mine

Last year, environmental campaigners secured a significant win at the high court. The presiding officer ruled that proposals to dig the first major coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had no consequence on national carbon targets. The new government subsequently revoked the permission the former government had granted. Now, this legal outcome faces being overturned by an foreign court answering to exclusively the corporations filing the suit.

During August, a corporate entity whose ultimate owners are located in the offshore financial centre filed a lawsuit against the UK government. Recently a tribunal in Washington DC was convened to hear it.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to proceed. The public has no clear indication how much this could amount to. What legal team is serving as its counsel against the state? An elected representative, and ex-law officer in the previous government, the noted patriot the MP. The administration enacts a policy, the high court supports it, then a international entity disputes it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

Simultaneously that the panel on the coal mine dispute was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows scarce of the case at present, but it appears probable that he may employ the tribunal to fight the sanctions the UK levied against him after the invasion of Ukraine. He has previously initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: an amount representing half government’s yearly income. Included in the counsel representing him there? a prominent lawyer, spouse of the former British prime minister.

Trade specialists contend that the EU’s delay in leveraging immobilised state funds as security for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over democratic administrations may be obstructing the money Ukraine desperately needs.

False Assurances and Mounting Threats

We were assured that these events could not occur. Years ago, a government leader, advocating for the most significant and hazardous of all these agreements, told us: “Britain has agreed to trade deal after trade deal and there has never been a case in the past.” A consultant on this issue accused campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by these lawsuits. Warnings that “when companies begin to understand the influence they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were met with general mockery.

That prediction is now a reality. This year, oil and gas and mining firms have initiated a record number of claims against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – government attempts to halt global warming. Corporations have thus far won $114bn by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP