🔗 Share this article

Can you understand our system of government works? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills pass into law. The law is upheld by the courts. That's it. Yet, that’s how it once functioned. Not anymore.

The Emergence of Offshore Tribunals

Nowadays, international firms, or the billionaires who own them, can sue elected administrations for the policies they pass, at private courts made up of corporate lawyers. Such disputes take place behind closed doors. Differing from national judiciaries, these bodies grant no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even enterprises headquartered in this country. Access is granted solely for corporations based overseas.

If a tribunal finds that a law or policy might diminish the corporation’s projected profits, it may order damages of hundreds of millions of pounds, potentially billions.

These awards constitute not real financial harm but funds the arbitrators determine the company would perhaps have made. The government could be forced to drop the legislation. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of facing litigation.

A Process Growing Exponentially

Record numbers of disputes are being filed, as corporations learn from each other, and private equity bankroll lawsuits in return for a portion of the takings. The outcome? Democratic sovereignty and democratic governance are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the choices taken by elected bodies is that this provision has been inserted – without public consent, and frequently under an atmosphere of profound opacity – into bilateral investment treaties.

A Specific Instance: The Whitehaven Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The justice ruled that schemes to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no impact on our carbon budgets. The new government later cancelled the permission the former government had approved. Now, this victory faces being overturned by an secret arbitration panel accountable to exclusively the corporations bringing the case.

During August, a firm whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in Washington DC was convened to adjudicate on it.

This firm is litigating against the UK for the profits it could have earned if the mine had received permission to go ahead. The public has no clear indication how much this could amount to. What legal team is serving as its counsel in opposition to the state? A sitting MP, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The government enacts a policy, the domestic court upholds it, then a foreign company contests it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Case

Simultaneously that the court on the mining lawsuit was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case at present, but it appears probable that he will utilise the ISDS mechanism to contest the penalties the UK levied against him following the war in Ukraine. He has previously initiated proceedings against a small nation with similar intent, seeking $16bn: half that state's annual revenue. Included in the lawyers on his side? a prominent lawyer, married to the previous PM.

Legal experts argue that the EU’s hesitation in utilising seized state funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations may be obstructing the funds Ukraine critically depends on.

False Assurances and Mounting Risks

We were assured that such things could not occur. Years ago, a senior politician, championing the biggest and most dangerous of all these agreements, declared: “We’ve signed trade deal after trade deal and there has not been a issue in the past.” An expert on this issue described campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states had to worry about such legal actions. Predictions that “as corporations grasp the influence they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were met with scepticism.

That warning has come to pass. Recently, oil and gas and extraction companies have lodged a record number of cases against nations rich and poor, contesting – like the example of the Whitehaven project – official measures to prevent climate breakdown. Firms have thus far won vast sums via ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP