🔗 Share this article

How do you perceive our system of government functions? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. Yet, that’s how it operated in the past. No longer.

The Rise of Shadow Tribunals

Today, foreign corporations, and the oligarchs behind them, have the power to sue nation states for the policies they pass, at offshore tribunals staffed by corporate lawyers. These proceedings take place 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, nor can our government, or even companies operating from this country. Access is granted solely for businesses operating from foreign soil.

If a tribunal determines that a government measure could harm the corporation’s anticipated profits, it has the power to grant compensation of vast sums, potentially billions.

These awards constitute not actual losses but compensation the tribunal officials determine the company might otherwise have made. The state might be compelled to rescind the measure. It is discouraged from introducing similar legislation in that area, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms learn from each other, and investment funds bankroll lawsuits in return for a portion of the takings. The outcome? National sovereignty and democratic governance are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the choices enacted by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid an atmosphere of profound opacity – inside international trade agreements.

A Concrete Case: The UK Coal Mine

Last year, a conservation group secured a significant win at the senior court. The justice ruled that plans to dig the first major coal mine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine would have no consequence on our carbon budgets. The incoming administration then withdrew the consent the previous administration had issued. Now, this victory is under threat by an foreign court answering to no one but the entities filing the suit.

During August, a company whose final controllers reside in the offshore financial centre initiated proceedings against the UK government. Last week a tribunal in the United States was set up to consider the case.

This firm is suing the UK for the money it might have made if the mine had received permission to go ahead. Citizens have no idea how much this might be. Which individual is acting on its behalf against the UK administration? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The government passes a law, the domestic court validates it, then a international entity contests it through an unaccountable arbitration panel, and a sitting MP represents its behalf.

A Sanctions Case

Simultaneously that the court on the coal mine dispute was established, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case to date, but it appears probable that he’ll use the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the Russian aggression. He has already filed a claim against a small nation with similar intent, demanding a colossal sum: an amount representing half government’s yearly income. Included in the lawyers acting for him in that case? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in using frozen state funds as guarantee for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Escalating Threats

Politicians promised that these events were not possible. In 2014, a government leader, promoting the biggest and most dangerous of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and there has never been a issue in the past.” An adviser on this matter labelled critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about such legal actions. Cautionary notes that “once firms start to realise the power they now possess, they will redirect their efforts from the weak nations to the developed economies” were greeted by scepticism.

That threat has come to pass. Recently, fossil fuel and mining firms have initiated a historic level of cases against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – state efforts to prevent global warming. Companies have to date won vast sums through ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP