🔗 Share this article

Can you understand our democratic process operates? It could be something like this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills become law. Statutes is maintained by the courts. That's it. Well, that used to be how it operated in the past. No longer.

The Rise of Offshore Courts

Nowadays, foreign corporations, or the wealthy individuals behind them, are able to litigate against governments for the policies they pass, at offshore tribunals staffed by commercial attorneys. The cases are held behind closed doors. In contrast to domestic courts, these tribunals provide no right of appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, or even companies headquartered in this country. Access is granted exclusively to businesses registered abroad.

If a tribunal finds that a legislative action could harm the corporation’s expected profits, it has the power to grant compensation of vast sums, even billions.

These awards constitute not actual losses but funds the arbitrators decide the company would perhaps have made. The state might be compelled to drop the legislation. It becomes discouraged from passing future laws of a similar nature, worried about facing litigation.

A System Growing Exponentially

Historically high figures of disputes are being filed, as companies learn from each other, and investment funds finance suits for a share of a share of the takings. The consequence? Sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the choices taken by parliaments is that this provision has been incorporated – without democratic mandate, and frequently under an atmosphere of extreme secrecy – into international trade agreements.

A Real-World Case: The Whitehaven Coalmine

Twelve months ago, activists achieved a major legal triumph at the high court. The presiding officer ruled that schemes to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The incoming administration later cancelled the licence the former government had granted. Now, this victory could be compromised by an foreign court answering to no one but the corporations petitioning it.

Last August, a corporate entity whose final controllers reside in the Cayman Islands lodged a claim challenging the UK government. Last week a arbitration panel in the US capital was established to adjudicate on it.

The claimant is suing the UK for the profits it could have earned if the mine had been permitted to commence operations. The public has no clear indication how much this might be. Who is serving as its counsel challenging the British government? A member of parliament, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the mining lawsuit was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. The public knows little of the case to date, but it appears probable that he’ll use the tribunal to challenge the restrictions the UK enacted against him following the invasion of Ukraine. He has previously started suing another European state for this reason, claiming a colossal sum: an amount representing half government’s yearly budget. Among the counsel on his side? a prominent lawyer, married to the former British prime minister.

Legal experts contend that the EU’s procrastination in utilising seized oligarchs' funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over democratic administrations may be obstructing the money Ukraine urgently requires.

Misleading Claims and Escalating Threats

Politicians promised that these events were not possible. Previously, a former prime minister, promoting the largest and riskiest of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has never been a case in the past.” A consultant on this topic labelled campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “once firms start to realise the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That warning has now materialised. This year, fossil fuel and mining firms have lodged a record number of suits against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – government attempts to stop environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP