🔗 Share this article

How do you understand our system of government operates? Maybe something like this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills become law. Legislation are enforced by the courts. End of story. Yet, that used to be how it used to work. Not anymore.

The Rise of Offshore Courts

Today, international firms, along with the billionaires behind them, have the power to sue nation states for the regulations they pass, at offshore tribunals staffed by commercial attorneys. The cases are conducted behind closed doors. In contrast to domestic courts, these panels provide no avenue for appeal or legal review. The general public are barred from bringing a case to them, nor can our government, including companies operating from this country. Access is granted exclusively to businesses based overseas.

When a secret court finds that a law or policy may compromise the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

These awards represent not tangible damages but compensation the arbitrators determine the company would perhaps have made. The administration could be forced to drop the legislation. It will be discouraged from passing future laws along the same lines, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as firms learn from each other, and private equity fund legal actions in exchange for a portion of the settlements. The consequence? Democratic sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the rulings made by parliaments is that this provision has been inserted – without democratic mandate, and often in conditions of profound opacity – inside bilateral investment treaties.

A Concrete Case: The Cumbrian Coalmine

Last year, environmental campaigners secured a significant win at the high court. The justice found that proposals to dig the first major coal mine in the UK for three decades, in Cumbria, had been wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine could have no consequence on national carbon targets. The new government later cancelled the consent the Tories had approved. Now, this success faces being overturned by an foreign court reporting to only the companies filing the suit.

In August, a corporate entity whose final controllers are located in the offshore financial centre lodged a claim challenging the UK government. Last week a dispute settlement body in the US capital was set up to consider the case.

This firm is suing the UK for the profits it could have earned if the mine had been permitted to proceed. We have no idea how much this could amount to. Who is acting on its behalf against the British government? A sitting MP, and ex-law officer in the Conservative government, that great patriot the MP. The state passes a law, the national judiciary supports it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a elected official works for its behalf.

The Russian Challenge

On the same day that the court on the coal mine dispute was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. The public knows scarce of the case to date, but it appears probable that he may employ the arbitration process to contest the restrictions the UK levied against him following the Russian aggression. He has already started suing a small nation for this reason, seeking $16bn: equivalent to half of state's yearly budget. Included in the counsel acting for him in that case? a prominent lawyer, married to the former British prime minister.

Trade specialists contend that the EU’s procrastination in utilising seized oligarchs' funds as security for its financial support package stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over democratic administrations might be preventing the money Ukraine urgently requires.

False Assurances and Mounting Costs

The public was told that these scenarios were not possible. In 2014, a government leader, promoting the most significant and hazardous of all these agreements, declared: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this topic accused activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about ISDS claims. Cautionary notes that “when companies grasp the influence they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were greeted by widespread derision.

That prediction has come to pass. In the current period, fossil fuel and resource corporations have lodged a record number of suits against nations across the economic spectrum, opposing – as in the case of the UK mine – government attempts to halt environmental catastrophe. Companies have to date won $114bn via ISDS, of which energy giants have secured $84bn. That equates to the combined GDP