🔗 Share this article

Can you perceive our democratic process works? It could be similar to this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. The law is upheld by the courts. That's it. However, that used to be how it operated in the past. Those days are over.

The Advent of Shadow Courts

Today, overseas companies, or the wealthy individuals who own them, can sue governments for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are held away from public scrutiny. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, including enterprises based in this country. The door is open solely for corporations operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, potentially billions.

These awards constitute not actual losses but money the panel members determine the company might otherwise have made. The state may have to drop the legislation. It becomes deterred from introducing similar legislation in that area, due to the risk of being sued.

A System Growing Exponentially

Record numbers of disputes are being filed, as corporations take cues from each other, and investment funds finance suits in return for a cut of the awards. The consequence? National sovereignty and democratic governance are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the choices taken by legislatures is that this provision has been inserted – without public consent, and frequently under an atmosphere of extreme secrecy – inside bilateral investment treaties.

A Concrete Instance: The UK Coal Mine

Last year, a conservation group won a great victory at the senior court. The judge found that schemes to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine would have zero effect on climate commitments. The incoming administration then withdrew the permission the former government had approved. Today, this legal outcome could be compromised by an foreign court answering to only the companies bringing the case.

Last August, a corporate entity whose ultimate owners are based in the Cayman Islands initiated proceedings against the UK government. Last week a dispute settlement body in the US capital was established to adjudicate on it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have no idea how much this could amount to. What legal team is serving as its counsel challenging the state? A member of parliament, and former attorney-general in the Conservative government, the noted patriot the MP. The administration enacts a policy, the high court validates it, then a international entity contests it through an undemocratic private court, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coalmine case was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. We know little of the case so far, but it seems likely that he will utilise the arbitration process to challenge the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg for this reason, demanding $16bn: an amount representing half state's annual revenue. Part of the counsel on his side? Cherie Blair, wife of the ex-UK leader.

International law scholars contend that the EU’s procrastination in leveraging immobilised Russian assets as security for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

False Assurances and Growing Risks

The public was told that such things could not occur. Previously, a former prime minister, promoting the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a problem in the past.” An expert on this topic accused campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by ISDS claims. Warnings that “as corporations start to realise the authority bestowed upon them, they will shift their focus from the weak nations to the strong ones” were met with general mockery.

That warning has come to pass. This year, fossil fuel and resource corporations have lodged a unprecedented number of suits against nations both wealthy and developing, contesting – similar to the UK mine – official measures to stop global warming. Companies have to date won $114bn through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That is equivalent to the combined GDP