🔗 Share this article

Can you understand our political system works? It could be something like this. We elect MPs. They legislate on bills. If a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. Well, that used to be how it operated in the past. Those days are over.

The Advent of Shadow Tribunals

In the modern era, foreign corporations, and the wealthy individuals who own them, have the power to sue governments for the regulations they pass, at secret arbitration panels staffed by business advocates. Such disputes are conducted in secret. In contrast to domestic courts, these tribunals grant no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, just as our government, or even enterprises operating from this country. They are open solely for businesses based overseas.

Should an arbitration panel determines that a government measure may compromise the corporation’s projected profits, it may order damages of hundreds of millions of pounds, running into billions.

These awards constitute not real financial harm but compensation the arbitrators decide the company might otherwise have made. The administration may have to rescind the measure. It will be discouraged from introducing similar legislation along the same lines, for fear of being sued.

A System Running Rampant

Unprecedented levels of legal actions are being initiated, as corporations observe each other, and investment funds fund legal actions in return for a portion of the awards. The result? Sovereignty and popular rule are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the rulings enacted by parliaments is that this provision has been inserted – absent public approval, and often in conditions of extreme secrecy – within trade treaties.

A Concrete Example: The Cumbrian Coalmine

Last year, activists won a great victory at the High Court. The presiding officer found that schemes to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have zero effect on national carbon targets. The Labour government later cancelled the consent the Tories had issued. Currently, this victory could be compromised by an foreign court accountable to only the companies filing the suit.

In August, a corporate entity whose beneficial owners are based in the Cayman Islands filed a lawsuit challenging the UK government. Recently a dispute settlement body in Washington DC was set up to adjudicate on it.

This firm is seeking compensation from the UK for the profits it might have made if the mine had received permission to commence operations. Citizens have little idea how much this could amount to. Who is acting on its behalf against the British government? An elected representative, and former attorney-general in the previous government, that great patriot the MP. The state passes a law, the national judiciary upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a elected official acts on its behalf.

A Sanctions Challenge

On the same day that the panel on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. Details are nothing of the case to date, but it seems likely that he may employ the ISDS mechanism to contest the penalties the UK enacted against him after the invasion of Ukraine. He has already initiated proceedings against another European state with similar intent, seeking a colossal sum: half that government’s yearly budget. Part of the counsel on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in using frozen oligarchs' funds as security for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine urgently requires.

Empty Promises and Growing Risks

We were assured that these scenarios could not occur. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, told us: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this matter described campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries had to worry about such legal actions. Warnings that “as corporations begin to understand the authority they now possess, they will turn their attention from the vulnerable countries to the strong ones” were greeted by scepticism.

That warning has come to pass. Recently, fossil fuel and resource corporations have filed a unprecedented number of cases against nations rich and poor, challenging – as in the case of the Whitehaven project – official measures to halt climate breakdown. Companies have thus far won vast sums via ISDS, of which energy giants have obtained $84bn. That represents the combined GDP