🔗 Share this article

How do you reckon our political system works? Perhaps something like this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. That's it. Well, that’s how it operated in the past. Those days are over.

The Emergence of Shadow Courts

Today, international firms, along with the wealthy individuals that control them, have the power to sue nation states for the laws they pass, at private courts made up of commercial attorneys. The cases are held away from public scrutiny. Unlike our courts, these tribunals grant no avenue for appeal or oversight by judges. The general public cannot take a case to them, nor can our government, including companies operating from this country. They are open exclusively to businesses based overseas.

When a secret court rules that a legislative action could harm the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, running into billions.

This compensation are based not on tangible damages but funds the arbitrators decide the company would perhaps have made. The administration may have to rescind the measure. It will be discouraged from passing future laws in that area, due to the risk of being sued.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as companies observe each other, and hedge funds bankroll lawsuits for a share of a portion of the awards. The outcome? National sovereignty and democratic governance are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the rulings enacted by legislatures is that this provision has been inserted – without public consent, and typically amid a climate of extreme secrecy – inside bilateral investment treaties.

A Concrete Case: The UK Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the high court. The judge found that plans to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine would have had no impact on national carbon targets. The new government later cancelled the licence the previous administration had granted. Today, this success is under threat by an foreign court accountable to exclusively the corporations petitioning it.

Last August, a company whose ultimate owners are located in the Cayman Islands initiated proceedings versus the UK government. Recently a tribunal in Washington DC was convened to adjudicate on it.

The company is suing the UK for the profits it could have earned if the mine had been allowed to proceed. We have little idea how much this might be. What legal team is serving as its counsel in opposition to the UK administration? A sitting MP, and former attorney-general in the Conservative government, the noted patriot the MP. The administration passes a law, the national judiciary upholds it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a elected official works for its behalf.

A Sanctions Case

On the same day that the court on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case so far, but it seems likely that he’ll use the arbitration process to contest the restrictions the UK imposed on him following the Russian aggression. He has already initiated proceedings against another European state for this reason, claiming a colossal sum: equivalent to half of state's yearly income. Among the legal team on his side? Cherie Blair, married to the former British prime minister.

International law scholars believe that the EU’s hesitation in utilising seized Russian assets as security for its loan to Ukraine arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations could be blocking the money Ukraine desperately needs.

False Assurances and Mounting Risks

Politicians promised that these events could not occur. Previously, a former prime minister, advocating for the biggest and most dangerous of all these agreements, stated: “The UK has signed trade agreement after trade deal and we have never seen a issue in the past.” An adviser on this matter described critics of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries should be concerned by such legal actions. Predictions that “once firms grasp the authority they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were dismissed with general mockery.

That warning is now a reality. This year, energy and mining firms have initiated a record number of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – state efforts to stop global warming. Companies have to date won vast sums via ISDS, of which energy giants have obtained $84bn. That equates to the combined GDP