🔗 Share this article

How do you reckon our system of government operates? It could be along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills become law. Legislation is maintained by the courts. End of story. However, that was how it once functioned. Those days are over.

The Emergence of Offshore Courts

In the modern era, foreign corporations, along with the wealthy individuals that control them, are able to litigate against elected administrations for the laws they pass, at private courts staffed by commercial attorneys. Such disputes are conducted in secret. In contrast to domestic courts, these tribunals grant no opportunity to appeal or legal review. You or I are barred from bringing a case to them, nor can our government, or even companies based in this country. Access is granted exclusively to businesses operating from foreign soil.

Should an arbitration panel finds that a legislative action may compromise the corporation’s projected profits, it has the power to grant damages of vast sums, even billions.

These awards are based not on tangible damages but compensation the panel members decide the company would perhaps have made. The government might be compelled to rescind the measure. It becomes hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being brought, as corporations learn from each other, and private equity bankroll lawsuits for a share of a share of the takings. The consequence? National sovereignty and democracy are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the choices made by parliaments is that this stipulation has been written – without democratic mandate, and often in conditions of profound opacity – into trade treaties.

A Real-World Case: The Cumbrian Coal Mine

Twelve months ago, activists secured a significant win at the senior court. The presiding officer ruled that plans to dig the first new deep coal mine in the UK for a generation, in Cumbria, were unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have zero effect on climate commitments. The new government later cancelled the permission the Tories had granted. Today, this legal outcome is under threat by an foreign court accountable to only the corporations petitioning it.

Last August, a company whose final controllers reside in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in the United States was set up to adjudicate on it.

The company is litigating against the UK for the revenue it would have generated if the mine had been permitted to commence operations. Citizens have little idea how much this could amount to. What legal team is serving as its counsel challenging the state? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state passes a law, the domestic court validates it, then a overseas corporation contests it through an undemocratic private court, and a elected official represents its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case to date, but it appears probable that he will utilise the arbitration process to contest the restrictions the UK levied against him after the war in Ukraine. He has already started suing Luxembourg with similar intent, seeking sixteen billion dollars: equivalent to half of state's yearly budget. Among the legal team acting for him in that case? Cherie Blair, spouse of the previous PM.

Trade specialists contend that the EU’s procrastination in leveraging immobilised state funds as guarantee for its financial support package stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over elected governments may be obstructing the finance Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that these scenarios could not occur. In 2014, a senior politician, advocating for the biggest and most dangerous of all investment pacts, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter accused campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the power they now possess, they will shift their focus from the poorer states to the strong ones” were met with widespread derision.

That threat is now a reality. This year, energy and resource corporations have lodged a unprecedented number of suits against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Companies have so far won vast sums via ISDS, of which energy giants have secured $84bn. That equates to the combined GDP