🔗 Share this article

Can you perceive our political system operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills become law. Legislation is upheld by the courts. Simple as that. However, that was how it once functioned. Those days are over.

The Rise of Offshore Courts

Nowadays, international firms, along with the oligarchs who own them, have the power to sue elected administrations for the laws they pass, at offshore tribunals made up of business advocates. The cases are held away from public scrutiny. In contrast to domestic courts, these bodies allow no right of appeal or judicial review. You or I are unable to file a case to them, nor can our government, including enterprises headquartered in this country. They are open exclusively to entities registered abroad.

Should an arbitration panel determines that a law or policy could harm the corporation’s expected profits, it may order damages of hundreds of millions, potentially billions.

These sums represent not real financial harm but funds the tribunal officials conclude the company could potentially have made. The administration may have to rescind the measure. It will be discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A System Running Rampant

Historically high figures of legal actions are being filed, as corporations observe each other, and investment funds fund legal actions for a share of a cut of the awards. The consequence? Democratic sovereignty and democratic governance are now too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the rulings enacted by legislatures is that this clause has been incorporated – without democratic mandate, and frequently under a climate of total confidentiality – into bilateral investment treaties.

A Concrete Case: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the high court. The judge ruled that proposals to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government subsequently revoked the consent the Tories had approved. Today, this success could be compromised by an secret arbitration panel reporting to exclusively the companies bringing the case.

In August, a company whose beneficial owners reside in the tax haven initiated proceedings against the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

This firm is suing the UK for the profits it might have made if the mine had been permitted to commence operations. We have no idea how much this sum represents. What legal team is acting on its behalf in opposition to the state? A member of parliament, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The state passes a law, the domestic court validates it, then a foreign company disputes it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

The Russian Case

Simultaneously that the court on the coalmine case was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case to date, but it seems likely that he’ll use the tribunal to fight the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has previously initiated proceedings against Luxembourg for this reason, seeking sixteen billion dollars: half that nation's yearly budget. Among the legal team on his side? Cherie Blair, married to the ex-UK leader.

International law scholars argue that the EU’s procrastination in utilising seized state funds as security for its loan to Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over democratic administrations might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that such things wouldn’t happen. Previously, a government leader, championing the most significant and hazardous of all such treaties, told us: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” A consultant on this matter labelled critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “once firms begin to understand the authority they now possess, they will turn their attention from the weak nations to the strong ones” were greeted by widespread derision.

That prediction has come to pass. Recently, oil and gas and resource corporations have lodged a record number of suits against nations rich and poor, opposing – similar to the UK mine – government attempts to halt global warming. Firms have thus far won vast sums through ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP