🔗 Share this article

How do you perceive our democratic process functions? Perhaps similar to this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. That's it. However, that was how it used to work. Those days are over.

The Rise of Shadow Courts

In the modern era, overseas companies, along with the oligarchs that control them, are able to litigate against nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. The cases take place away from public scrutiny. Differing from national judiciaries, these panels allow no avenue for appeal or legal review. You or I are barred from bringing a case to them, nor can our government, including companies based in this country. They are open solely for businesses based overseas.

Should an arbitration panel finds that a legislative action may compromise the corporation’s projected profits, it may order compensation of vast sums, potentially billions.

These awards are based not on real financial harm but money the panel members determine the company would perhaps have made. The administration could be forced to abandon its policy. It will be deterred from enacting future policies along the same lines, worried about being sued.

A Mechanism Running Rampant

Historically high figures of legal actions are being filed, as companies observe each other, and hedge funds finance suits for a share of a share of the settlements. The result? Sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the choices made by legislatures is that this stipulation has been inserted – without democratic mandate, and often in an atmosphere of profound opacity – inside bilateral investment treaties.

A Concrete Instance: The Cumbrian Coal Mine

Twelve months ago, a conservation group secured a significant win at the High Court. The justice ruled that schemes to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine would have zero effect on national carbon targets. The incoming administration later cancelled the licence the former government had granted. Currently, this victory could be compromised by an offshore tribunal answering to no one but the entities filing the suit.

During August, a company whose ultimate owners reside in the tax haven lodged a claim versus the UK government. Recently a dispute settlement body in the United States was convened to adjudicate on it.

The claimant is litigating against the UK for the profits it might have made if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. Who is acting on its behalf in opposition to the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the national judiciary validates it, then a foreign company disputes it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

Simultaneously that the tribunal on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are little of the case at present, but it is highly possible that he will utilise the tribunal to challenge the restrictions the UK imposed on him following the Russian aggression. He has already initiated proceedings against Luxembourg for this reason, seeking $16bn: equivalent to half of nation's yearly budget. Part of the counsel on his side? a prominent lawyer, married to the ex-UK leader.

Legal experts contend that the EU’s hesitation in leveraging immobilised state funds as security for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states could be blocking the money Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that such things wouldn’t happen. Previously, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, declared: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this topic accused campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries had to worry about ISDS claims. Predictions that “as corporations grasp the authority they now possess, they will shift their focus from the vulnerable countries to the developed economies” were greeted by scepticism.

That prediction is now a reality. In the current period, fossil fuel and resource corporations have lodged a historic level of cases against nations across the economic spectrum, opposing – similar to the Whitehaven project – government attempts to prevent global warming. Corporations have so far won $114bn through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP