🔗 Share this article

How do you understand our democratic process works? It could be similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills become law. The law is maintained by the courts. That's it. However, that was how it operated in the past. No longer.

The Emergence of Shadow Courts

Nowadays, foreign corporations, or the billionaires behind them, have the power to sue nation states for the laws they pass, at private courts composed of business advocates. These proceedings are held in secret. Unlike our courts, these bodies provide no right of appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, including companies headquartered in this country. Access is granted solely for businesses based overseas.

Should an arbitration panel determines that a government measure could harm the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, even billions.

This compensation constitute not tangible damages but compensation the arbitrators decide the company could potentially have made. The state may have to abandon its policy. It will be deterred from enacting future policies in that area, due to the risk of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being initiated, as firms observe each other, and investment funds fund legal actions in return for a cut of the awards. The outcome? National sovereignty and popular rule are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the rulings enacted by elected bodies is that this clause has been incorporated – absent public approval, and frequently under a climate of profound opacity – inside international trade agreements.

A Real-World Instance: The Whitehaven Coalmine

A year ago, environmental campaigners secured a significant win at the high court. The judge determined that proposals to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had agreed to the questionable argument that the mine would have had no consequence on climate commitments. The incoming administration subsequently revoked the consent the Tories had approved. Today, this success is under threat by an offshore tribunal accountable to no one but the companies filing the suit.

During August, a corporate entity whose beneficial owners are located in the tax haven lodged a claim against the UK government. Last week a arbitration panel in the US capital was set up to consider the case.

This firm is litigating against the UK for the profits it would have generated if the mine had received permission to go ahead. We have no idea how much this might be. What legal team is representing it against the British government? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The government enacts a policy, the high court validates it, then a overseas corporation contests it through an secretive private court, and a elected official represents its behalf.

A Sanctions Case

Concurrently that the tribunal on the coalmine case was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case to date, but it appears probable that he may employ the ISDS mechanism to fight the restrictions the UK levied against him after the invasion of Ukraine. He has already initiated proceedings against another European state on these grounds, claiming $16bn: half that state's annual revenue. Among the counsel on his side? a prominent lawyer, married to the ex-UK leader.

Trade specialists believe that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its financial support package stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over sovereign states may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Escalating Costs

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed trade agreement upon trade deal and we have never seen a problem in the past.” An adviser on this topic labelled campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Warnings that “as corporations begin to understand the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with general mockery.

That threat has now materialised. Recently, energy and extraction companies have filed a historic level of claims against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – official measures to halt environmental catastrophe. Corporations have so far won $114bn by using ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That is equivalent to the combined GDP