🔗 Share this article

What is your understand our system of government works? Perhaps something like this. Citizens choose MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. The law is upheld by the courts. End of story. However, that used to be how it once functioned. Those days are over.

The Rise of Offshore Courts

Today, foreign corporations, or the wealthy individuals behind them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings take place away from public scrutiny. Unlike our courts, these bodies grant no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, or even enterprises based in this country. Access is granted only to entities registered abroad.

When a secret court rules that a government measure may compromise the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions, running into billions.

These sums constitute not real financial harm but money the tribunal officials determine the company would perhaps have made. The government could be forced to drop the legislation. It becomes hesitant to passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Process Running Rampant

Historically high figures of cases are being initiated, as companies take cues from each other, and hedge funds finance suits in return for a portion of the takings. The outcome? National sovereignty and democracy are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override domestic law and the rulings enacted by legislatures is that this provision has been written – without public consent, and typically amid an atmosphere of profound opacity – into bilateral investment treaties.

A Specific Case: The Whitehaven Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The judge ruled that proposals to open the first new deep coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The incoming administration later cancelled the permission the Tories had approved. Now, this legal outcome could be compromised by an foreign court accountable to only the companies bringing the case.

Last August, a firm whose final controllers are based in the offshore financial centre initiated proceedings against the UK government. Recently a dispute settlement body in the United States was set up to adjudicate on it.

The company is suing the UK for the money it could have earned if the mine had received permission to proceed. Citizens have no idea how much this sum represents. Who is acting on its behalf challenging the British government? An elected representative, and ex-law officer in the Conservative government, that great patriot the MP. The government makes a decision, the domestic court upholds it, then a overseas corporation challenges it through an secretive private court, and a elected official works for its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coalmine case was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case to date, but it appears probable that he may employ the ISDS mechanism to fight the sanctions the UK imposed on him subsequent to the Russian aggression. He has already initiated proceedings against another European state on these grounds, seeking a colossal sum: half that nation's annual revenue. Among the counsel on his side? a prominent lawyer, married to the former British prime minister.

International law scholars argue that the EU’s procrastination in utilising seized oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over democratic administrations may be obstructing the money Ukraine urgently requires.

False Assurances and Escalating Risks

We were assured that these scenarios were not possible. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement upon trade deal and we have never seen a case in the past.” An expert on this matter described activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “when companies grasp the influence bestowed upon them, they will turn their attention from the weak nations to the wealthy nations” were met with general mockery.

That prediction has now materialised. Recently, energy and mining firms have filed a historic level of claims against nations rich and poor, contesting – as in the case of the UK mine – official measures to halt climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP