🔗 Share this article

How do you reckon our political system operates? Perhaps along the lines of this. We elect MPs. They vote on bills. When a majority is obtained, the bills pass into law. Statutes is maintained by the courts. End of story. Well, that was how it operated in the past. Those days are over.

The Emergence of Shadow Courts

In the modern era, overseas companies, and the wealthy individuals who own them, can sue elected administrations for the laws they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are held behind closed doors. Differing from national judiciaries, these tribunals provide no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, including companies headquartered in this country. They are open exclusively to corporations registered abroad.

When a secret court rules that a legislative action might diminish the corporation’s projected profits, it may order damages of hundreds of millions, potentially billions.

These sums constitute not tangible damages but funds the panel members conclude the company could potentially have made. The administration may have to drop the legislation. It will be hesitant to enacting future policies along the same lines, worried about facing litigation.

A Mechanism Growing Exponentially

Record numbers of legal actions are being filed, as corporations learn from each other, and private equity fund legal actions in return for a cut of the awards. The consequence? National sovereignty and popular rule are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the rulings taken by elected bodies is that this clause has been inserted – absent public approval, and typically amid conditions of profound opacity – within trade treaties.

A Real-World Example: The UK Coalmine

Last year, activists won a great victory at the High Court. The justice determined that schemes to excavate the first deep coalmine in the UK for three decades, in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have zero effect on national carbon targets. The Labour government later cancelled the consent the former government had issued. Today, this success is under threat by an foreign court answering to only the corporations filing the suit.

In August, a corporate entity whose beneficial owners reside in the tax haven initiated proceedings versus the UK government. Last week a dispute settlement body 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 been allowed to proceed. We have little idea how much this sum represents. What legal team is serving as its counsel challenging the state? A sitting MP, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a international entity challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

A Sanctions Challenge

Concurrently that the court on the coalmine case was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know nothing of the case so far, but it is highly possible that he’ll use the arbitration process to fight the restrictions the UK enacted against him subsequent to the war in Ukraine. He has initiated proceedings against Luxembourg with similar intent, demanding a colossal sum: half that state's yearly budget. Part of the lawyers representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in using frozen Russian assets as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the funds Ukraine desperately needs.

Misleading Claims and Escalating Costs

The public was told that these scenarios could not occur. Previously, a senior politician, championing the most significant and hazardous of all such treaties, told us: “The UK has signed trade agreement upon trade deal and there has never been a issue in the past.” An adviser on this issue accused activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations had to worry about these lawsuits. Predictions that “once firms begin to understand the authority bestowed upon them, they will shift their focus from the poorer states to the wealthy nations” were met with scepticism.

That prediction is now a reality. Recently, fossil fuel and extraction companies have initiated a record number of cases against nations across the economic spectrum, challenging – similar to the Whitehaven project – official measures to halt environmental catastrophe. Companies have to date won vast sums via ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP