🔗 Share this article

Can you perceive our democratic process functions? Maybe something like this. We elect MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Well, that used to be how it once functioned. No longer.

The Advent of Offshore Tribunals

Nowadays, international firms, and the oligarchs behind them, can sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are held away from public scrutiny. Unlike our courts, these tribunals allow no right of appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, including businesses based in this country. The door is open only to businesses registered abroad.

When a secret court determines that a law or policy might diminish the corporation’s projected profits, it has the power to grant damages of vast sums, potentially billions.

These awards constitute not actual losses but compensation the tribunal officials decide the company might otherwise have made. The administration may have to rescind the measure. It is discouraged from enacting future policies along the same lines, worried about facing litigation.

A Process Growing Exponentially

Unprecedented levels of legal actions are being initiated, as companies learn from each other, and investment funds finance suits in exchange for a share of the awards. The consequence? Democratic sovereignty and democracy are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the rulings taken by legislatures is that this provision has been incorporated – without democratic mandate, and often in conditions of profound opacity – within trade treaties.

A Concrete Instance: The Whitehaven Coalmine

Twelve months ago, a conservation group won a great victory at the High Court. The justice determined that plans to excavate the first new deep coal mine in the UK for three decades, in Cumbria, were illegally sanctioned by the previous government, which had accepted the questionable argument that the mine could have zero effect on climate commitments. The Labour government later cancelled the licence the previous administration had granted. Now, this legal outcome is under threat by an secret arbitration panel answering to only the corporations filing the suit.

Last August, a firm whose beneficial owners reside in the offshore financial centre filed a lawsuit challenging the UK government. Recently a tribunal in Washington DC was established to hear it.

The company is suing the UK for the profits it would have generated if the mine had received permission to commence operations. We have no idea how much this could amount to. Who is acting on its behalf in opposition to the state? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot the MP. The state enacts a policy, the domestic court upholds it, then a foreign company disputes it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

Simultaneously that the panel on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it seems likely that he’ll use the tribunal to challenge the sanctions the UK imposed on him subsequent to the war in Ukraine. He has previously started suing Luxembourg on these grounds, claiming $16bn: an amount representing half state's annual revenue. Among the counsel acting for him in that case? the wife of a former prime minister, married to the previous PM.

International law scholars contend that the EU’s procrastination in utilising seized Russian assets as guarantee for its financial support package arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

Misleading Claims and Escalating Risks

Politicians promised that these events could not occur. Years ago, a former prime minister, promoting the largest and riskiest of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and there has never been a issue in the past.” An adviser on this topic labelled critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “when companies grasp the authority bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were greeted by general mockery.

That threat has now materialised. This year, fossil fuel and resource corporations have lodged a historic level of suits against nations rich and poor, challenging – similar to the Cumbrian coalmine – state efforts to stop environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which oil majors have obtained $84bn. That represents the combined GDP