🔗 Share this article

Can you reckon our political system operates? Maybe something like this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. However, that was how it once functioned. No longer.

The Advent of Offshore Tribunals

Nowadays, foreign corporations, along with the wealthy individuals behind them, can sue elected administrations for the laws they pass, at private courts staffed by commercial attorneys. These proceedings are held away from public scrutiny. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted exclusively to businesses registered abroad.

If a tribunal finds that a legislative action may compromise the corporation’s expected profits, it may order financial penalties of vast sums, running into billions.

These awards constitute not actual losses but compensation the arbitrators decide the company would perhaps have made. The administration may have to drop the legislation. It is hesitant to passing future laws in that area, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being filed, as companies learn from each other, and investment funds fund legal actions for a share of a portion of the awards. The consequence? Democratic sovereignty and democratic governance are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override national legislation and the decisions enacted by elected bodies is that this provision has been incorporated – without public consent, and typically amid a climate of profound opacity – into bilateral investment treaties.

A Concrete Instance: The Whitehaven Coalmine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The justice found that schemes to excavate the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine could have no consequence on our carbon budgets. The incoming administration later cancelled the permission the Tories had issued. Now, this legal outcome faces being overturned by an secret arbitration panel answering to exclusively the companies petitioning it.

Last August, a firm whose ultimate owners reside in the offshore financial centre filed a lawsuit challenging the UK government. Recently a arbitration panel in the United States was established to consider the case.

The company is seeking compensation from the UK for the money it could have earned if the mine had been allowed to commence operations. The public has no clear indication how much this sum represents. What legal team is serving as its counsel challenging the UK administration? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a foreign company challenges it through an secretive arbitration panel, and a sitting MP represents its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case to date, but it seems likely that he may employ the arbitration process to fight the restrictions the UK imposed on him subsequent to the Russian aggression. He has already initiated proceedings against Luxembourg with similar intent, claiming $16bn: equivalent to half of government’s annual revenue. Included in the legal team on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s procrastination in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over sovereign states might be preventing the finance Ukraine desperately needs.

Empty Promises and Growing Costs

The public was told that these events wouldn’t happen. Previously, a government leader, advocating for the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” An adviser on this issue labelled activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “as corporations begin to understand the authority they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That prediction has come to pass. In the current period, oil and gas and extraction companies have filed a unprecedented number of suits against nations rich and poor, opposing – similar to the Whitehaven project – government attempts to stop global warming. Companies have so far won vast sums by using ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP