🔗 Share this article

How do you perceive our system of government operates? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. That's it. Well, that’s how it operated in the past. Those days are over.

The Advent of Offshore Arbitration Panels

In the modern era, overseas companies, or the billionaires who own them, have the power to sue elected administrations for the laws they pass, at private courts staffed by corporate lawyers. The cases are held behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, or even businesses based in this country. The door is open only to corporations registered abroad.

If a tribunal finds that a law or policy may compromise the corporation’s projected profits, it may order damages of vast sums, potentially billions.

This compensation are based not on actual losses but compensation the tribunal officials conclude the company would perhaps have made. The state could be forced to rescind the measure. It will be hesitant to passing future laws along the same lines, due to the risk of facing litigation.

A System Running Rampant

Unprecedented levels of legal actions are being initiated, as firms learn from each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The outcome? Democratic sovereignty and democracy are turning into prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the choices made by legislatures is that this stipulation has been written – without democratic mandate, and frequently under a climate of extreme secrecy – within trade treaties.

A Concrete Instance: The Whitehaven Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The justice ruled that plans to excavate the first deep coalmine in the UK for a generation, in Cumbria, had been wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have no impact on climate commitments. The incoming administration subsequently revoked the permission the previous administration had issued. Currently, this success could be compromised by an secret arbitration panel answering to no one but the entities filing the suit.

Last August, a corporate entity whose ultimate owners reside in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a tribunal in the US capital was set up to consider the case.

The company is seeking compensation from the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have little idea how much this might be. Which individual is acting on its behalf challenging the UK administration? An elected representative, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The government passes a law, the national judiciary supports it, then a foreign company challenges it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

The Russian Case

On the same day that the panel on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he will utilise the tribunal to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg for this reason, demanding a colossal sum: half that nation's yearly budget. Among the lawyers on his side? a prominent lawyer, wife of the former British prime minister.

Legal experts argue that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations could be blocking the funds Ukraine urgently requires.

Empty Promises and Growing Costs

Politicians promised that such things wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and we have never seen a issue in the past.” An expert on this topic described activists of “alarmism … in reality, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “as corporations grasp the influence bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were met with scepticism.

That threat has now materialised. In the current period, energy and extraction companies have filed a record number of cases against nations rich and poor, challenging – as in the case of the Whitehaven project – official measures to prevent environmental catastrophe. Firms have to date won vast sums by using ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP