🔗 Share this article

What is your reckon our political system works? Perhaps along the lines of this. We elect MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Well, that was how it operated in the past. Not anymore.

The Rise of Offshore Tribunals

Today, foreign corporations, or the oligarchs that control them, are able to litigate against elected administrations for the policies they pass, at private courts made up of commercial attorneys. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. You or I cannot take a case to them, and neither can our government, including companies based in this country. They are open only to businesses registered abroad.

Should an arbitration panel finds that a government measure might diminish the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions of pounds, even billions.

These sums are based not on actual losses but money the tribunal officials decide the company could potentially have made. The administration could be forced to drop the legislation. It is discouraged from passing future laws of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being brought, as firms learn from each other, and private equity finance suits in return for a cut of the takings. The outcome? Democratic sovereignty and democratic governance are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the choices made by legislatures is that this clause has been written – absent public approval, and frequently under an atmosphere of profound opacity – within trade treaties.

A Concrete Case: The UK Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The judge ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on national carbon targets. The incoming administration later cancelled the consent the Tories had approved. Currently, this legal outcome could be compromised by an foreign court accountable to only the corporations filing the suit.

In August, a firm whose ultimate owners are based in the tax haven filed a lawsuit versus the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

The company is litigating against the UK for the money it would have generated if the mine had been allowed to proceed. The public has little idea how much this could amount to. Who is serving as its counsel against the state? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a foreign company contests it through an unaccountable private court, and a member of our parliament acts on its behalf.

The Russian Case

On the same day that the panel on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are little of the case to date, but it appears probable that he will utilise the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the war in Ukraine. He has started suing Luxembourg for this reason, demanding $16bn: half that state's yearly budget. Part of the counsel representing him there? the wife of a former prime minister, married to the previous PM.

Trade specialists contend that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over democratic administrations may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Escalating Risks

The public was told that these scenarios could not occur. In 2014, a government leader, promoting the biggest and most dangerous of all such treaties, told us: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An adviser on this topic labelled campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about these lawsuits. Predictions that “as corporations start to realise the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That prediction has come to pass. This year, energy and extraction companies have filed a historic level of claims against nations across the economic spectrum, opposing – like the example of the UK mine – government attempts to stop environmental catastrophe. Firms have so far won $114bn through ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP