🔗 Share this article

How do you understand our democratic process operates? Maybe similar to this. We elect MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. The law is maintained by the courts. That's it. Yet, that used to be how it once functioned. No longer.

The Advent of Offshore Tribunals

Today, international firms, or the oligarchs that control them, are able to litigate against governments for the laws they pass, at private courts made up of business advocates. The cases are held behind closed doors. In contrast to domestic courts, these bodies grant no right of appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even businesses operating from this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel rules that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

These awards are based not on actual losses but funds the panel members determine the company would perhaps have made. The government could be forced to drop the legislation. It becomes discouraged from passing future laws in that area, worried about facing litigation.

A Process Growing Exponentially

Historically high figures of disputes are being filed, as companies learn from each other, and private equity finance suits in return for a share of the settlements. The consequence? National sovereignty and popular rule are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the choices taken by legislatures is that this clause has been incorporated – without public consent, and often in an atmosphere of extreme secrecy – into bilateral investment treaties.

A Specific Example: The Whitehaven Coalmine

Last year, environmental campaigners secured a significant win at the high court. The judge ruled that proposals to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The incoming administration later cancelled the permission the Tories had issued. Today, this legal outcome is under threat by an foreign court reporting to exclusively the corporations petitioning it.

In August, a corporate entity whose ultimate owners are based in the Cayman Islands lodged a claim versus the UK government. Last week a arbitration panel in the United States was set up to adjudicate on it.

The claimant is suing the UK for the profits it would have generated if the mine had been permitted to proceed. Citizens have no clear indication how much this might be. What legal team is acting on its behalf challenging the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the domestic court upholds it, then a international entity disputes it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Challenge

On the same day that the panel on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case at present, but it is highly possible that he may employ the ISDS mechanism to challenge the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against another European state on these grounds, seeking a colossal sum: an amount representing half state's annual revenue. Part of the counsel on his side? a prominent lawyer, wife of the previous PM.

International law scholars argue that the EU’s hesitation in using frozen state funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Escalating Costs

The public was told that these events wouldn’t happen. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “We’ve signed investment treaty upon trade deal and there has never been a issue in the past.” An expert on this matter described campaigners of “alarmism … in reality, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “once firms start to realise the influence bestowed upon them, they will turn their attention from the weak nations to the strong ones” were greeted by general mockery.

That prediction has come to pass. Recently, energy and mining firms have filed a historic level of cases against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – state efforts to stop environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured the majority. That represents the combined GDP