🔗 Share this article

Can you reckon our system of government works? Maybe something like this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. End of story. Yet, that was how it used to work. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, foreign corporations, along with the wealthy individuals that control them, have the power to sue governments for the laws they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings take place in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, including businesses headquartered in this country. Access is granted solely for businesses registered abroad.

When a secret court finds that a legislative action may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

These sums represent not tangible damages but funds the panel members conclude the company would perhaps have made. The administration may have to abandon its policy. It is hesitant to passing future laws in that area, worried about facing litigation.

A System Growing Exponentially

Historically high figures of disputes are being filed, as companies learn from each other, and private equity fund legal actions for a share of a portion of the settlements. The outcome? Sovereignty and popular rule are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the rulings made by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under conditions of total confidentiality – inside bilateral investment treaties.

A Specific Instance: The UK Coal Mine

Last year, a conservation group secured a significant win at the High Court. The presiding officer determined that proposals to excavate the first major coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The incoming administration later cancelled the permission the Tories had granted. Currently, this success could be compromised by an offshore tribunal answering to only the companies petitioning it.

During August, a company whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. Last week a dispute settlement body in the US capital was set up to consider the case.

This firm is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. We have no clear indication how much this sum represents. Who is serving as its counsel against the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The state enacts a policy, the high court supports it, then a overseas corporation challenges it through an secretive arbitration panel, and a sitting MP works for its behalf.

The Russian Challenge

Simultaneously that the tribunal on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case at present, but it is highly possible that he may employ the arbitration process to contest the penalties the UK imposed on him following the war in Ukraine. He has already filed a claim against Luxembourg on these grounds, claiming a colossal sum: an amount representing half government’s yearly budget. Among the legal team acting for him in that case? a prominent lawyer, married to the ex-UK leader.

Trade specialists believe that the EU’s hesitation in utilising seized Russian assets as security for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations could be blocking the money Ukraine urgently requires.

Empty Promises and Growing Threats

We were assured that such things were not possible. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” A consultant on this issue described activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations had to worry about ISDS claims. Warnings that “once firms start to realise the authority they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That prediction has now materialised. Recently, energy and extraction companies have lodged a historic level of cases against nations across the economic spectrum, contesting – similar to the Whitehaven project – official measures to stop environmental catastrophe. Companies have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured the majority. That represents the combined GDP