🔗 Share this article

Can you perceive our political system works? Maybe something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills become law. Legislation are enforced by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Advent of Offshore Tribunals

In the modern era, foreign corporations, along with the billionaires that control them, have the power to sue nation states for the policies they pass, at secret arbitration panels staffed by business advocates. Such disputes are held in secret. In contrast to domestic courts, these panels provide no opportunity to appeal or judicial review. The general public are unable to file a case to them, just as our government, or even businesses operating from this country. Access is granted only to entities based overseas.

If a tribunal rules that a legislative action could harm the corporation’s projected profits, it may order financial penalties of hundreds of millions, even billions.

These sums are based not on actual losses but funds the arbitrators decide the company might otherwise have made. The state might be compelled to drop the legislation. It is deterred from introducing similar legislation in that area, for fear of facing litigation.

A System Growing Exponentially

Unprecedented levels of cases are being filed, as corporations learn from each other, and investment funds fund legal actions in return for a share of the awards. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the decisions taken by legislatures is that this clause has been written – without public consent, and typically amid an atmosphere of profound opacity – inside trade treaties.

A Real-World Case: The Cumbrian Coalmine

Twelve months ago, a conservation group secured a significant win at the high court. The judge found that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine could have zero effect on our carbon budgets. The Labour government then withdrew the consent the Tories had issued. Currently, this victory faces being overturned by an offshore tribunal accountable to exclusively the corporations petitioning it.

In August, a firm whose ultimate owners are located in the Cayman Islands initiated proceedings challenging the UK government. The previous week a tribunal in the United States was convened to adjudicate on it.

The company is litigating against the UK for the revenue it could have earned if the mine had been permitted to commence operations. We have little idea how much this could amount to. Who is acting on its behalf in opposition to the UK administration? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a foreign company challenges it through an unaccountable private court, and a sitting MP acts on its behalf.

The Russian Case

Concurrently that the tribunal on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he will utilise the ISDS mechanism to fight the restrictions the UK imposed on him after the war in Ukraine. He has previously started suing Luxembourg for this reason, claiming sixteen billion dollars: equivalent to half of state's annual revenue. Part of the legal team representing him there? the wife of a former prime minister, wife of the former British prime minister.

International law scholars contend that the EU’s hesitation in using frozen state funds as security for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations could be blocking the funds Ukraine critically depends on.

False Assurances and Growing Threats

Politicians promised that such things were not possible. In 2014, a senior politician, advocating for the most significant and hazardous of all investment pacts, stated: “We’ve signed trade deal upon trade deal and we have never seen a problem in the past.” A consultant on this topic labelled campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by ISDS claims. Predictions that “when companies grasp the power they now possess, they will shift their focus from the poorer states to the strong ones” were dismissed with scepticism.

That warning is now a reality. Recently, energy and extraction companies have filed a historic level of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to stop global warming. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured $84bn. That represents the combined GDP