🔗 Share this article

Can you understand our system of government functions? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. End of story. However, that used to be how it operated in the past. Those days are over.

The Advent of Offshore Courts

Nowadays, foreign corporations, and the billionaires behind them, have the power to sue nation states for the policies they pass, at offshore tribunals made up of commercial attorneys. These proceedings are held behind closed doors. Differing from national judiciaries, these panels allow no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even businesses operating from this country. They are open solely for corporations operating from foreign soil.

Should an arbitration panel finds that a law or policy may compromise the corporation’s anticipated profits, it can award damages of vast sums, potentially billions.

These awards represent not actual losses but funds the arbitrators conclude the company might otherwise have made. The state could be forced to abandon its policy. It will be deterred from introducing similar legislation along the same lines, due to the risk of being sued.

A Process Running Rampant

Record numbers of legal actions are being filed, as companies observe each other, and private equity fund legal actions in return for a cut of the awards. The consequence? Sovereignty and popular rule are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the rulings made by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid conditions of total confidentiality – into international trade agreements.

A Specific Instance: The Cumbrian Coal Mine

A year ago, environmental campaigners won a great victory at the High Court. The justice ruled that proposals to excavate the first major 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 would have had no impact on national carbon targets. The new government later cancelled the consent the former government had approved. Now, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the entities bringing the case.

In August, a company whose final controllers are located in the tax haven lodged a claim challenging the UK government. The previous week a tribunal in Washington DC was convened to adjudicate on it.

The claimant is suing the UK for the revenue it would have generated if the mine had been permitted to commence operations. The public has no clear indication how much this might be. What legal team is representing it in opposition to the state? An elected representative, and former attorney-general in the previous government, that great patriot the MP. The administration makes a decision, the national judiciary upholds it, then a international entity challenges it through an unaccountable private court, and a elected official acts on its behalf.

An Oligarch's Challenge

On the same day that the panel on the coalmine case was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case to date, but it seems likely that he’ll use the ISDS mechanism to challenge the sanctions the UK imposed on him subsequent to the war in Ukraine. He has initiated proceedings against Luxembourg with similar intent, claiming sixteen billion dollars: an amount representing half nation's yearly budget. Among the counsel representing him there? Cherie Blair, spouse of the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized Russian assets as security for its financial support package stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over democratic administrations may be obstructing the finance Ukraine desperately needs.

Misleading Claims and Mounting Risks

We were assured that such things wouldn’t happen. Years ago, a former prime minister, championing the largest and riskiest of all investment pacts, declared: “The UK has signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this issue described activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by ISDS claims. Predictions that “when companies begin to understand the authority bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That threat has come to pass. Recently, fossil fuel and mining firms have lodged a record number of cases against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – government attempts to prevent climate breakdown. Firms have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured $84bn. That represents the combined GDP