🔗 Share this article

What is your reckon our political system operates? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills become law. Legislation is upheld by the courts. End of story. Yet, that used to be how it operated in the past. Those days are over.

The Emergence of Shadow Courts

Nowadays, international firms, or the billionaires behind them, have the power to sue governments for the laws they pass, at private courts composed of corporate lawyers. The cases take place behind closed doors. In contrast to domestic courts, these bodies provide no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even companies operating from this country. They are open solely for entities based overseas.

If a tribunal finds that a legislative action could harm the corporation’s projected 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 of a similar nature, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being brought, as corporations learn from each other, and private equity bankroll lawsuits in exchange for a share of the settlements. The consequence? National sovereignty and popular rule are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the choices enacted by elected bodies is that this clause has been incorporated – without democratic mandate, and frequently under an atmosphere of total confidentiality – into trade treaties.

A Concrete Example: The UK Coalmine

Last year, a conservation group won a great victory at the high court. The presiding officer ruled that proposals to dig the first new deep coal mine in the UK for three decades, in Cumbria, had been wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no impact on national carbon targets. The new government later cancelled the consent the former government had granted. Today, this success is under threat by an foreign court reporting to exclusively the corporations filing the suit.

During August, a company whose final controllers are based in the tax haven filed a lawsuit challenging the UK government. Recently a dispute settlement body in the United States was set up to hear it.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to proceed. The public has no clear indication how much this sum represents. Which individual is serving as its counsel challenging the UK administration? A sitting MP, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The state makes a decision, the domestic court validates it, then a overseas corporation challenges it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

The Russian Challenge

On the same day that the court on the coalmine case was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know nothing of the case to date, but it is highly possible that he will utilise the ISDS mechanism to fight the restrictions the UK imposed on him following the war in Ukraine. He has previously initiated proceedings against a small nation on these grounds, demanding a colossal sum: half that government’s yearly budget. Included in the legal team representing him there? Cherie Blair, wife of the ex-UK leader.

Legal experts contend that the EU’s hesitation in using frozen oligarchs' funds as collateral for its financial support package stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

Misleading Claims and Mounting Threats

The public was told that such things were not possible. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, told us: “We’ve signed trade agreement after trade deal and there has never been a problem in the past.” An adviser on this topic accused activists of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries should be concerned by these lawsuits. Predictions that “when companies grasp the influence they now possess, they will redirect their efforts from the poorer states to the strong ones” were greeted by general mockery.

That prediction has now materialised. This year, energy and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, contesting – like the example of the UK mine – government attempts to prevent climate breakdown. Firms have thus far won $114bn through ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP