🔗 Share this article

Can you reckon our political system works? Maybe something like this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills pass into law. Statutes is upheld by the courts. That's it. However, that was how it once functioned. Not anymore.

The Rise of Offshore Tribunals

Nowadays, foreign corporations, or the billionaires behind them, are able to litigate against governments for the laws they pass, at offshore tribunals made up of business advocates. Such disputes are conducted behind closed doors. Unlike our courts, these panels allow no right of appeal or legal review. The general public are barred from bringing a case to them, just as our government, including companies headquartered in this country. They are open only to corporations registered abroad.

When a secret court rules that a legislative action might diminish the corporation’s projected profits, it can award damages of vast sums, even billions.

These awards represent not actual losses but compensation the arbitrators decide the company could potentially have made. The government could be forced to rescind the measure. It will be hesitant to introducing similar legislation of a similar nature, for fear of facing litigation.

A Process Running Rampant

Historically high figures of disputes are being brought, as companies learn from each other, and investment funds finance suits in return for a share of the awards. The consequence? Sovereignty and popular rule are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the choices taken by parliaments is that this stipulation has been incorporated – without public consent, and typically amid a climate of total confidentiality – inside international trade agreements.

A Real-World Case: The UK Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The judge found that proposals to excavate the first new deep coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine could have zero effect on national carbon targets. The incoming administration then withdrew the permission the former government had issued. Today, this success is under threat by an offshore tribunal answering to exclusively the entities petitioning it.

In August, a firm whose ultimate owners are based in the tax haven filed a lawsuit challenging the UK government. Last week a arbitration panel in Washington DC was set up to consider the case.

This firm is suing the UK for the money it could have earned if the mine had been allowed to go ahead. The public has little idea how much this could amount to. Who is representing it in opposition to the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the high court validates it, then a overseas corporation disputes it through an undemocratic private court, and a elected official acts on its behalf.

The Russian Case

Simultaneously that the court on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case to date, but it is highly possible that he may employ the arbitration process to fight the penalties the UK levied against him following the invasion of Ukraine. He has previously started suing Luxembourg on these grounds, seeking sixteen billion dollars: equivalent to half of state's yearly income. Among the legal team on his side? a prominent lawyer, married to the ex-UK leader.

International law scholars contend that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, unaccountable authority over sovereign states may be obstructing the money Ukraine desperately needs.

False Assurances and Mounting Risks

The public was told that these scenarios were not possible. Previously, a government leader, advocating for the largest and riskiest of all investment pacts, stated: “Britain has agreed to investment treaty upon trade deal and we have never seen a problem in the past.” An adviser on this issue labelled critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that solely developing countries should be concerned by such legal actions. Warnings that “when companies start to realise the authority they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were dismissed with widespread derision.

That threat has come to pass. This year, energy and mining firms have filed a historic level of claims against nations rich and poor, challenging – as in the case of the UK mine – government attempts to prevent environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP