🔗 Share this article

Can you reckon our political system operates? It could be similar to this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. The law are enforced by the courts. Simple as that. Yet, that was how it once functioned. No longer.

The Advent of Offshore Tribunals

Nowadays, international firms, and the billionaires who own them, are able to litigate against governments for the regulations they pass, at private courts made up of corporate lawyers. These proceedings are held behind closed doors. Unlike our courts, these panels allow no right of appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even enterprises headquartered in this country. Access is granted only to entities based overseas.

Should an arbitration panel rules that a law or policy might diminish the corporation’s expected profits, it may order compensation of vast sums, running into billions.

This compensation represent not actual losses but funds the tribunal officials determine the company might otherwise have made. The state could be forced to drop the legislation. It is deterred from introducing similar legislation of a similar nature, due to the risk of being sued.

A Process Running Rampant

Historically high figures of disputes are being initiated, as firms observe each other, and private equity bankroll lawsuits in return for a share of the takings. The outcome? National sovereignty and democratic governance are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the choices enacted by legislatures is that this stipulation has been incorporated – without public consent, and frequently under conditions of profound opacity – into trade treaties.

A Real-World Case: The UK Coal Mine

Last year, activists secured a significant win at the senior court. The presiding officer ruled that schemes to dig the first major coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had no impact on national carbon targets. The Labour government later cancelled the licence the previous administration had issued. Now, this victory faces being overturned by an foreign court accountable to no one but the companies bringing the case.

In August, a firm whose beneficial owners are based in the offshore financial centre initiated proceedings against the UK government. The previous week a dispute settlement body in Washington DC was established to hear it.

The claimant is suing the UK for the revenue it could have earned if the mine had been permitted to go ahead. Citizens have no idea how much this sum represents. Which individual is representing it challenging the state? A sitting MP, and previous senior legal advisor in the Conservative government, that great patriot the MP. The administration enacts a policy, the national judiciary supports it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was established, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he’ll use the tribunal to challenge the penalties the UK imposed on him following the invasion of Ukraine. He has previously started suing a small nation with similar intent, demanding sixteen billion dollars: equivalent to half of government’s yearly income. Among the legal team acting for him in that case? a prominent lawyer, wife of the former British prime minister.

International law scholars argue that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the money Ukraine desperately needs.

Empty Promises and Growing Threats

The public was told that these scenarios wouldn’t happen. Years ago, a senior politician, championing the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” A consultant on this matter labelled activists of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Predictions that “once firms grasp the authority they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were greeted by widespread derision.

That warning is now a reality. This year, energy and extraction companies have filed a record number of cases against nations rich and poor, challenging – similar to the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP