🔗 Share this article

Can you perceive our democratic process operates? Perhaps similar to this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. Legislation are enforced by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Rise of Offshore Tribunals

Today, international firms, or the wealthy individuals behind them, are able to litigate against elected administrations for the policies they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, including companies based in this country. The door is open only to entities based overseas.

If a tribunal determines that a legislative action could harm the corporation’s anticipated profits, it can award compensation of vast sums, even billions.

These sums are based not on real financial harm but money the tribunal officials decide the company might otherwise have made. The state may have to abandon its policy. It will be discouraged from enacting future policies in that area, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of legal actions are being brought, as corporations learn from each other, and investment funds bankroll lawsuits for a share of a portion of the awards. The consequence? National sovereignty and democracy are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the choices enacted by legislatures is that this stipulation has been written – without democratic mandate, and typically amid conditions of profound opacity – into bilateral investment treaties.

A Real-World Case: The Cumbrian Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The justice determined that schemes to open the first new deep coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no consequence on climate commitments. The new government later cancelled the consent the former government had granted. Today, this success is under threat by an foreign court accountable to exclusively the entities petitioning it.

In August, a firm whose ultimate owners are based in the offshore financial centre lodged a claim versus the UK government. Last week a arbitration panel in Washington DC was convened to consider the case.

The claimant is litigating against the UK for the revenue it would have generated if the mine had received permission to go ahead. We have little idea how much this might be. Who is representing it against the state? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The government passes a law, the domestic court supports it, then a international entity disputes it through an secretive arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Case

Concurrently that the panel on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case at present, but it is highly possible that he’ll use the tribunal to contest the sanctions the UK imposed on him following the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, claiming $16bn: equivalent to half of government’s yearly budget. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s delay in using frozen oligarchs' funds as guarantee for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Growing Threats

We were assured that these events wouldn’t happen. In 2014, a government leader, advocating for the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty upon trade deal and there has never been a problem in the past.” A consultant on this matter described critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations had to worry about ISDS claims. Predictions that “as corporations begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were met with widespread derision.

That prediction is now a reality. Recently, fossil fuel and resource corporations have initiated a unprecedented number of claims against nations both wealthy and developing, contesting – 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 through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP