🔗 Share this article

What is your understand our system of government functions? Perhaps similar to this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills become law. Legislation is upheld by the courts. End of story. However, that was how it once functioned. No longer.

The Emergence of Offshore Courts

Nowadays, overseas companies, or the billionaires that control them, can sue nation states for the regulations they pass, at private courts made up of commercial attorneys. The cases take place in secret. In contrast to domestic courts, these panels allow no opportunity to appeal or judicial review. The general public cannot take a case to them, and neither can our government, including businesses operating from this country. They are open solely for corporations operating from foreign soil.

Should an arbitration panel rules that a legislative action could harm the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, potentially billions.

These awards represent not real financial harm but funds the tribunal officials determine the company could potentially have made. The administration may have to abandon its policy. It will be deterred from introducing similar legislation in that area, worried about being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies take cues from each other, and hedge funds bankroll lawsuits in exchange for a cut of the awards. The outcome? Democratic sovereignty and democracy are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the choices taken by parliaments is that this stipulation has been incorporated – without democratic mandate, and often in a climate of profound opacity – into international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the senior court. The justice found that plans to open the first deep coalmine in the UK for three decades, in northwest England, were found to be wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine could have no consequence on our carbon budgets. The incoming administration then withdrew the permission the Tories had issued. Now, this success is under threat by an offshore tribunal answering to only the companies petitioning it.

During August, a company whose beneficial owners are located in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a tribunal in the United States was set up to hear it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had received permission to commence operations. Citizens have little idea how much this could amount to. Which individual is acting on its behalf challenging the UK administration? A sitting MP, and former attorney-general in the Conservative government, that great patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary upholds it, then a overseas corporation challenges it through an unaccountable private court, and a member of our parliament acts on its behalf.

An Oligarch's Case

Simultaneously that the tribunal 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 wealthy Russian individual, an oligarch. Details are little of the case so far, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK imposed on him after the invasion of Ukraine. He has previously started suing Luxembourg with similar intent, seeking a colossal sum: equivalent to half of nation's yearly income. Included in the lawyers on his side? Cherie Blair, wife of the ex-UK leader.

International law scholars argue that the EU’s hesitation in leveraging immobilised state funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments may be obstructing the money Ukraine urgently requires.

Empty Promises and Growing Threats

Politicians promised that such things could not occur. In 2014, a government leader, championing the largest and riskiest of all these agreements, declared: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this topic labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about ISDS claims. Predictions that “once firms begin to understand the power they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by scepticism.

That prediction is now a reality. Recently, energy and mining firms have filed a unprecedented number of claims against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – official measures to halt environmental catastrophe. Corporations have thus far won vast sums by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That represents the combined GDP