🔗 Share this article

What is your understand our political system works? Maybe similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. The law are enforced by the courts. That's it. However, that was how it used to work. Those days are over.

The Emergence of Offshore Courts

In the modern era, international firms, or the wealthy individuals behind them, are able to litigate against nation states for the regulations they pass, at private courts staffed by commercial attorneys. Such disputes take place behind closed doors. In contrast to domestic courts, these bodies allow no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, or even companies operating from this country. Access is granted solely for corporations registered abroad.

When a secret court rules that a legislative action could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions, even billions.

These sums constitute not real financial harm but funds the tribunal officials decide the company would perhaps have made. The administration may have to abandon its policy. It is hesitant to enacting future policies of a similar nature, worried about facing litigation.

A System Running Rampant

Record numbers of legal actions are being initiated, as corporations observe each other, and investment funds fund legal actions in exchange for a portion of the awards. The outcome? Democratic sovereignty and democracy are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the choices enacted by legislatures is that this stipulation has been inserted – without public consent, and typically amid conditions of total confidentiality – inside international trade agreements.

A Real-World Example: The Cumbrian Coal Mine

Twelve months ago, activists won a great victory at the high court. The presiding officer found that proposals to open the first major coal mine in the UK for three decades, in northwest England, were wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government later cancelled the licence the former government had granted. Today, this success is under threat by an offshore tribunal reporting to only the companies bringing the case.

During August, a company whose ultimate owners are located in the Cayman Islands lodged a claim against the UK government. Last week a tribunal in the United States was convened to consider the case.

This firm is litigating against the UK for the money it could have earned if the mine had been permitted to commence operations. The public has no clear indication how much this could amount to. Which individual is representing it in opposition to the British government? An elected representative, and ex-law officer in the outgoing administration, that great patriot the MP. The state makes a decision, the domestic court upholds it, then a overseas corporation challenges it through an secretive arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the mining lawsuit was established, 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 at present, but it appears probable that he may employ the tribunal to fight the restrictions the UK levied against him following the Russian aggression. He has initiated proceedings against another European state on these grounds, seeking $16bn: an amount representing half state's annual revenue. Among the counsel representing him there? the wife of a former prime minister, married to the previous PM.

Trade specialists argue that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the funds Ukraine critically depends on.

Empty Promises and Mounting Risks

We were assured that such things could not occur. Years ago, a senior politician, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed investment treaty upon trade deal and there has not been a issue in the past.” An expert on this issue accused campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries should be concerned by these lawsuits. Warnings that “when companies begin to understand the influence they now possess, they will shift their focus from the weak nations to the developed economies” were dismissed with scepticism.

That prediction is now a reality. This year, fossil fuel and extraction companies have filed a unprecedented number of suits against nations rich and poor, challenging – like the example of the UK mine – state efforts to prevent global warming. Corporations have thus far won vast sums through ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP