🔗 Share this article

How do you reckon our system of government functions? Maybe similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Legislation are enforced by the courts. That's it. Yet, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Courts

Today, overseas companies, and the billionaires that control them, can sue elected administrations for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes take place in secret. Unlike our courts, these bodies grant no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises based in this country. They are open solely for businesses registered abroad.

When a secret court rules that a government measure might diminish the corporation’s projected profits, it has the power to grant compensation of vast sums, potentially billions.

These awards are based not on tangible damages but funds the arbitrators determine the company might otherwise have made. The state could be forced to rescind the measure. It will be hesitant to introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of legal actions are being initiated, as firms learn from each other, and private equity fund legal actions for a share of a cut of the awards. The consequence? Sovereignty and democracy are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the rulings enacted by parliaments is that this stipulation has been written – without democratic mandate, and often in an atmosphere of total confidentiality – inside international trade agreements.

A Specific Example: The Cumbrian Coalmine

Twelve months ago, environmental campaigners won a great victory at the High Court. The justice determined that plans to excavate the first deep coalmine in the UK for 30 years, in northwest England, had been unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The Labour government subsequently revoked the licence the Tories had approved. Today, this legal outcome is under threat by an offshore tribunal answering to only the entities filing the suit.

During August, a firm whose ultimate owners are located in the offshore financial centre filed a lawsuit challenging the UK government. Recently a tribunal in the US capital was established to consider the case.

This firm is seeking compensation from the UK for the money it might have made if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. Which individual is acting on its behalf against the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The state passes a law, the national judiciary upholds it, then a foreign company contests it through an unaccountable offshore tribunal, and a elected official represents its behalf.

The Russian Lawsuit

Concurrently that the panel on the coalmine case was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case so far, but it seems likely that he will utilise the ISDS mechanism to challenge the penalties the UK enacted against him after the invasion of Ukraine. He has already initiated proceedings against Luxembourg on these grounds, demanding $16bn: an amount representing half nation's yearly income. Included in the legal team acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists argue that the EU’s hesitation in using frozen Russian assets as security for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over elected governments may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Growing Costs

The public was told that these scenarios could not occur. Previously, a senior politician, advocating for the biggest and most dangerous of all investment pacts, stated: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” An expert on this matter accused campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations had to worry about ISDS claims. Predictions that “once firms start to realise the authority they now possess, they will turn their attention from the poorer states to the developed economies” were met with general mockery.

That threat is now a reality. Recently, fossil fuel and mining firms have initiated a unprecedented number of suits against nations rich and poor, opposing – similar to the Cumbrian coalmine – government attempts to stop environmental catastrophe. Companies have to date won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP