🔗 Share this article

Can you reckon our political system functions? It could be along the lines of this. We elect MPs. They vote on bills. If a majority is achieved, the bills become law. Legislation is maintained by the courts. Simple as that. Well, that’s how it used to work. Those days are over.

The Advent of Secret Courts

Today, foreign corporations, or the billionaires who own them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. The cases are held away from public scrutiny. In contrast to domestic courts, these panels provide no opportunity to appeal or judicial review. You or I cannot take a case to them, just as our government, or even enterprises headquartered in this country. Access is granted only to corporations based overseas.

When a secret court finds that a government measure may compromise the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, even billions.

These awards constitute not tangible damages but funds the tribunal officials conclude the company would perhaps have made. The government could be forced to abandon its policy. It will be deterred from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Process Running Rampant

Record numbers of legal actions are being filed, as corporations observe each other, and hedge funds finance suits in exchange for a cut of the awards. The result? National sovereignty and democracy are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the choices enacted by legislatures is that this clause has been written – without public consent, and typically amid conditions of profound opacity – inside bilateral investment treaties.

A Concrete Instance: The Whitehaven Coal Mine

Twelve months ago, activists won a great victory at the senior court. The justice found that proposals to excavate the first new deep coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine could have no consequence on national carbon targets. The new government later cancelled the licence the former government had approved. Currently, this success faces being overturned by an offshore tribunal reporting to exclusively the companies filing the suit.

During August, a corporate entity whose final controllers are located in the tax haven filed a lawsuit challenging the UK government. Recently a dispute settlement body in the US capital was established to adjudicate on it.

This firm is suing the UK for the money it would have generated if the mine had been allowed to proceed. We have no idea how much this sum represents. Who is serving as its counsel against the British government? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a international entity contests it through an undemocratic arbitration panel, and a elected official acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coalmine case was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has already started suing another European state on these grounds, demanding sixteen billion dollars: an amount representing half state's yearly income. Among the counsel acting for him in that case? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s hesitation in using frozen state funds as security for its aid for Ukraine 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 might be preventing the finance Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that such things wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and there has not been a issue in the past.” A consultant on this matter accused activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “once firms begin to understand the power bestowed upon them, they will shift their focus from the weak nations to the developed economies” were dismissed with scepticism.

That threat has now materialised. In the current period, oil and gas and resource corporations have filed a historic level of suits against nations rich and poor, opposing – similar to the Cumbrian coalmine – government attempts to stop environmental catastrophe. Firms have thus far won $114bn through ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP