🔗 Share this article

Can you perceive our political system functions? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. Well, that’s how it operated in the past. Those days are over.

The Advent of Shadow Courts

Nowadays, international firms, and the oligarchs behind them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are conducted behind closed doors. Unlike our courts, these tribunals allow no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even companies operating from this country. Access is granted solely for corporations based overseas.

Should an arbitration panel rules that a government measure could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These sums constitute not actual losses but compensation the arbitrators conclude the company could potentially have made. The administration might be compelled to rescind the measure. It is deterred from enacting future policies in that area, due to the risk of being sued.

A System Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms learn from each other, and private equity fund legal actions in return for a portion of the takings. The result? National sovereignty and democracy are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the decisions taken by elected bodies is that this stipulation has been written – without public consent, and frequently under an atmosphere of profound opacity – within bilateral investment treaties.

A Specific Example: The UK Coal Mine

A year ago, activists secured a significant win at the high court. The judge found that plans to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine could have no impact on national carbon targets. The incoming administration then withdrew the licence the former government had approved. Now, this victory faces being overturned by an secret arbitration panel accountable to no one but the entities petitioning it.

During August, a firm whose final controllers are based in the Cayman Islands lodged a claim against the UK government. The previous week a dispute settlement body in Washington DC was established to consider the case.

The claimant is litigating against the UK for the money it could have earned if the mine had been permitted to commence operations. We have little idea how much this could amount to. Which individual is representing it in opposition to the British government? A sitting MP, and ex-law officer in the outgoing administration, that great patriot the MP. The government passes a law, the high court supports it, then a international entity disputes it through an unaccountable private court, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the court on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case at present, but it seems likely that he may employ the tribunal to contest the penalties the UK imposed on him following the war in Ukraine. He has previously started suing another European state on these grounds, demanding $16bn: half that government’s annual revenue. Part of the lawyers acting for him in that case? Cherie Blair, wife of the former British prime minister.

Legal experts argue that the EU’s delay in utilising seized state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations could be blocking the funds Ukraine critically depends on.

False Assurances and Escalating Risks

The public was told that these scenarios were not possible. Years ago, a senior politician, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed investment treaty upon trade deal and we have never seen a case in the past.” An expert on this topic accused campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states needed to fear such legal actions. Warnings that “once firms begin to understand the influence they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were met with widespread derision.

That warning has come to pass. In the current period, fossil fuel and mining firms have filed a record number of claims against nations rich and poor, opposing – similar to the Whitehaven project – state efforts to prevent climate breakdown. Companies have so far won vast sums through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP