🔗 Share this article

What is your perceive our system of government works? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills become law. Statutes is upheld by the courts. Simple as that. Well, that’s how it used to work. No longer.

The Emergence of Offshore Courts

Nowadays, international firms, or the wealthy individuals who own them, can sue nation states for the laws they pass, at offshore tribunals made up of commercial attorneys. These proceedings take place in secret. In contrast to domestic courts, these panels provide no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, or even enterprises based in this country. They are open only to businesses registered abroad.

When a secret court determines that a legislative action may compromise the corporation’s expected profits, it has the power to grant damages of vast sums, running into billions.

This compensation constitute not actual losses but compensation the tribunal officials decide the company might otherwise have made. The administration could be forced to drop the legislation. It will be discouraged from passing future laws along the same lines, for fear of being sued.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies take cues from each other, and investment funds bankroll lawsuits for a share of a share of the awards. The result? Sovereignty and popular rule are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the rulings enacted by legislatures is that this clause has been incorporated – without public consent, and often in conditions of extreme secrecy – into international trade agreements.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the senior court. The judge determined that schemes to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine would have had zero effect on our carbon budgets. The Labour government then withdrew the permission the previous administration had issued. Today, this victory faces being overturned by an secret arbitration panel answering to only the companies bringing the case.

In August, a company whose final controllers are based in the Cayman Islands initiated proceedings versus the UK government. Last week a arbitration panel in the United States was convened to hear it.

This firm is litigating against the UK for the revenue it might have made if the mine had received permission to go ahead. The public has no idea how much this could amount to. Which individual is representing it in opposition to the UK administration? A member of parliament, and ex-law officer in the previous government, that great patriot the MP. The state passes a law, the high court supports it, then a overseas corporation challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

Simultaneously that the tribunal on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it appears probable that he will utilise the tribunal to fight the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has already started suing Luxembourg with similar intent, seeking $16bn: half that 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 leveraging immobilised Russian assets as collateral for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, unaccountable authority over democratic administrations could be blocking the funds Ukraine desperately needs.

Misleading Claims and Mounting Threats

We were assured that these events could not occur. In 2014, a senior politician, advocating for the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to trade deal after trade deal and we have never seen a case in the past.” A consultant on this topic described activists of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That prediction has come to pass. In the current period, fossil fuel and mining firms have filed a historic level of claims against nations both wealthy and developing, opposing – like the example of the Whitehaven project – state efforts to halt global warming. Companies have so far won vast sums through ISDS, of which oil majors have secured $84bn. That equates to the combined GDP