🔗 Share this article

How do you reckon our democratic process works? Perhaps along the lines of this. We elect MPs. They debate and pass bills. When a majority is secured, the bills are enacted as law. The law is upheld by the courts. End of story. Well, that’s how it operated in the past. No longer.

The Emergence of Offshore Courts

In the modern era, overseas companies, and the billionaires who own them, are able to litigate against governments for the laws they pass, at offshore tribunals made up of business advocates. The cases are conducted in secret. In contrast to domestic courts, these bodies grant no right of appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even businesses based in this country. They are open solely for businesses registered abroad.

When a secret court finds that a government measure might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

This compensation represent not tangible damages but compensation the arbitrators decide the company would perhaps have made. The state could be forced to rescind the measure. It will be hesitant to introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of cases are being filed, as corporations learn from each other, and private equity bankroll lawsuits for a share of a portion of the awards. The outcome? National sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the choices enacted by parliaments is that this provision has been written – absent public approval, and typically amid conditions of total confidentiality – inside international trade agreements.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, a conservation group secured a significant win at the senior court. The judge determined that schemes to open the first deep coalmine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have zero effect on climate commitments. The Labour government subsequently revoked the permission the Tories had granted. Currently, this legal outcome faces being overturned by an foreign court accountable to only the corporations petitioning it.

During August, a company whose final controllers are located in the offshore financial centre filed a lawsuit against the UK government. Recently a tribunal in Washington DC was set up to adjudicate on it.

The company is litigating against the UK for the profits it might have made if the mine had been permitted to commence operations. We have no clear indication how much this could amount to. Who is serving as its counsel in opposition to the state? A member of parliament, and former attorney-general in the previous government, the noted patriot the MP. The administration enacts a policy, the domestic court supports it, then a foreign company disputes it through an undemocratic arbitration panel, and a elected official works for its behalf.

A Sanctions 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 Russian oligarch, Mikhail Fridman. Details are nothing of the case so far, but it seems likely that he’ll use the tribunal to fight the penalties the UK levied against him following the invasion of Ukraine. He has started suing another European state for this reason, seeking sixteen billion dollars: equivalent to half of state's annual revenue. Part of the counsel representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments might be preventing the money Ukraine desperately needs.

Empty Promises and Escalating Risks

Politicians promised that these scenarios could not occur. Years ago, a senior politician, advocating for the largest and riskiest of all such treaties, declared: “Britain has agreed to investment treaty upon trade deal and there has never been a issue in the past.” A consultant on this matter labelled critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations should be concerned by such legal actions. Warnings that “when companies begin to understand the power they now possess, they will shift their focus from the poorer states to the strong ones” were met with scepticism.

That threat is now a reality. In the current period, fossil fuel and mining firms have lodged a unprecedented number of claims against nations rich and poor, opposing – as in the case of the UK mine – government attempts to halt environmental catastrophe. Companies have to date won vast sums through ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP