🔗 Share this article

What is your understand our political system functions? It could be similar to this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Rise of Shadow Courts

Nowadays, overseas companies, or the oligarchs that control them, can sue elected administrations for the policies they pass, at private courts made up of commercial attorneys. The cases take place away from public scrutiny. Differing from national judiciaries, these tribunals provide no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even companies headquartered in this country. Access is granted exclusively to entities registered abroad.

Should an arbitration panel determines that a law or policy might diminish the corporation’s expected profits, it can award damages of hundreds of millions, potentially billions.

This compensation constitute not real financial harm but funds the panel members determine the company would perhaps have made. The administration may have to abandon its policy. It will be deterred from introducing similar legislation of a similar nature, for fear of being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being brought, as companies learn from each other, and private equity fund legal actions for a share of a portion of the awards. The consequence? Sovereignty and democratic governance are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the rulings enacted by elected bodies is that this clause has been written – without democratic mandate, and typically amid a climate of total confidentiality – into bilateral investment treaties.

A Specific Case: The Cumbrian Coalmine

Twelve months ago, a conservation group won a great victory at the senior court. The justice determined that plans to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine could have no impact on climate commitments. The Labour government later cancelled the consent the former government had approved. Currently, this success faces being overturned by an offshore tribunal reporting to only the entities bringing the case.

In August, a firm whose beneficial owners are based in the tax haven filed a lawsuit challenging the UK government. Last week a arbitration panel in Washington DC was set up to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. Which individual is acting on its behalf in opposition to the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The administration passes a law, the national judiciary supports it, then a international entity disputes it through an secretive private court, and a member of our parliament acts on its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are little of the case so far, but it appears probable that he’ll use the ISDS mechanism to fight the penalties the UK enacted against him following the war in Ukraine. He has already filed a claim against Luxembourg on these grounds, seeking $16bn: an amount representing half government’s yearly income. Included in the legal team acting for him in that case? Cherie Blair, wife of the previous PM.

International law scholars contend that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over sovereign states could be blocking the finance Ukraine critically depends on.

False Assurances and Mounting Risks

Politicians promised that these events could not occur. Previously, a senior politician, promoting the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement upon trade deal and there has not been a case in the past.” A consultant on this topic labelled campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “when companies start to realise the power they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were met with general mockery.

That warning has now materialised. This year, energy and extraction companies have filed a unprecedented number of suits against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – official measures to prevent climate breakdown. Firms have thus far won vast sums by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP