🔗 Share this article

How do you understand our system of government functions? It could be something like this. We elect MPs. They vote on bills. When a majority is obtained, the bills pass into law. The law are enforced by the courts. Simple as that. Well, that was how it once functioned. Those days are over.

The Rise of Offshore Courts

Nowadays, international firms, and the wealthy individuals that control them, can sue governments for the policies they pass, at private courts made up of business advocates. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels provide no right of appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, including enterprises based in this country. Access is granted solely for businesses registered abroad.

Should an arbitration panel determines that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, potentially billions.

This compensation are based not on real financial harm but money the arbitrators decide the company would perhaps have made. The state might be compelled to rescind the measure. It will be deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A Process Running Rampant

Unprecedented levels of legal actions are being initiated, as firms take cues from each other, and private equity finance suits in return for a share of the awards. The result? National sovereignty and democratic governance are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the rulings enacted by elected bodies is that this clause has been inserted – absent public approval, and typically amid a climate of profound opacity – into bilateral investment treaties.

A Concrete Example: The UK Coalmine

A year ago, a conservation group secured a significant win at the senior court. The judge ruled that plans to excavate the first major coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine could have no consequence on climate commitments. The Labour government then withdrew the permission the Tories had approved. Now, this success is under threat by an offshore tribunal reporting to no one but the entities petitioning it.

In August, a corporate entity whose final controllers are based in the offshore financial centre initiated proceedings versus the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

This firm is litigating against the UK for the money it would have generated if the mine had been permitted to commence operations. The public has no clear indication how much this sum represents. Who is representing it in opposition to the British government? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The state passes a law, the domestic court supports it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case so far, but it seems likely that he will utilise the arbitration process to contest the restrictions the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, seeking a colossal sum: an amount representing half government’s annual revenue. Included in the lawyers representing him there? a prominent lawyer, married to the previous PM.

Trade specialists believe that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that these events wouldn’t happen. Previously, a former prime minister, advocating for the largest and riskiest of all such treaties, told us: “Britain has agreed to trade agreement after trade deal and we have never seen a case in the past.” An expert on this matter accused campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states had to worry about such legal actions. Predictions that “when companies begin to understand the power bestowed upon them, they will shift their focus from the weak nations to the developed economies” were met with general mockery.

That prediction is now a reality. In the current period, fossil fuel and extraction companies have initiated a unprecedented number of cases against nations both wealthy and developing, challenging – as in the case of the UK mine – state efforts to stop climate breakdown. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP