🔗 Share this article

How do you reckon our political system works? Perhaps similar to this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills become law. The law is maintained by the courts. Simple as that. However, that used to be how it once functioned. Those days are over.

The Rise of Offshore Courts

Nowadays, foreign corporations, along with the billionaires behind them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels staffed by business advocates. These proceedings take place in secret. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even businesses operating from this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel rules that a law or policy may compromise the corporation’s projected profits, it can award damages of vast sums, potentially billions.

These sums are based not on tangible damages but funds the panel members determine the company would perhaps have made. The government could be forced to drop the legislation. It becomes discouraged from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Mechanism Growing Exponentially

Historically high figures of cases are being initiated, as corporations learn from each other, and hedge funds finance suits in return for a share of the takings. The result? National sovereignty and democratic governance are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the decisions taken by parliaments is that this provision has been inserted – absent public approval, and typically amid an atmosphere of extreme secrecy – inside trade treaties.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, activists secured a significant win at the high court. The presiding officer ruled that plans to excavate the first major coal mine in the UK for three decades, in northwest England, were unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have had zero effect on national carbon targets. The Labour government subsequently revoked the permission the former government had approved. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to no one but the companies bringing the case.

During August, a firm whose final controllers reside in the offshore financial centre initiated proceedings challenging the UK government. The previous week a dispute settlement body in the United States was convened to hear it.

The claimant is suing the UK for the revenue it might have made if the mine had been allowed to commence operations. The public has no clear indication how much this could amount to. Which individual is representing it challenging the British government? A sitting MP, and former attorney-general in the Conservative government, the noted patriot the MP. The state passes a law, the domestic court upholds it, then a foreign company challenges it through an undemocratic private court, and a member of our parliament represents its behalf.

The Russian Challenge

Concurrently that the court on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the penalties the UK levied against him following the invasion of Ukraine. He has previously filed a claim against Luxembourg with similar intent, claiming a colossal sum: equivalent to half of nation's yearly budget. Part of the counsel acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Trade specialists believe that the EU’s hesitation in using frozen Russian assets as collateral for its financial support package stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, unaccountable authority over sovereign states could be blocking the funds Ukraine critically depends on.

False Assurances and Escalating Costs

The public was told that such things wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all these agreements, declared: “We’ve signed trade deal upon trade deal and we have never seen a case in the past.” A consultant on this topic labelled critics of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by such legal actions. Predictions that “once firms grasp the authority they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were met with general mockery.

That warning has now materialised. In the current period, energy and mining firms have initiated a record number of suits against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – government attempts to halt global warming. Companies have to date won $114bn through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP