🔗 Share this article

Can you reckon our system of government functions? Maybe similar to this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. Yet, that was how it once functioned. Those days are over.

The Rise of Offshore Tribunals

Today, overseas companies, along with the billionaires who own them, can sue governments for the regulations they pass, at offshore tribunals staffed by business advocates. The cases take place in secret. Unlike our courts, these bodies grant no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies headquartered in this country. They are open exclusively to corporations operating from foreign soil.

When a secret court determines that a law or policy may compromise the corporation’s expected profits, it may order damages of hundreds of millions of pounds, even billions.

These awards are based not on real financial harm but funds the tribunal officials determine the company might otherwise have made. The government could be forced to drop the legislation. It becomes hesitant to enacting future policies of a similar nature, worried about being sued.

A Mechanism Running Rampant

Historically high figures of disputes are being initiated, as firms learn from each other, and hedge funds fund legal actions in exchange for a portion of the settlements. The consequence? Democratic sovereignty and democracy are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the rulings enacted by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid conditions of total confidentiality – within bilateral investment treaties.

A Specific Example: The UK Coalmine

Last year, activists won a great victory at the High Court. The presiding officer determined that plans to dig the first new deep coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on climate commitments. The new government subsequently revoked the consent the Tories had issued. Now, this legal outcome is under threat by an foreign court reporting to only the corporations bringing the case.

During August, a corporate entity whose beneficial owners reside in the offshore financial centre initiated proceedings versus the UK government. The previous week a dispute settlement body in Washington DC was established to hear it.

The company is litigating against the UK for the revenue it would have generated if the mine had received permission to go ahead. The public has little idea how much this could amount to. What legal team is representing it in opposition to the British government? An elected representative, and previous senior legal advisor in the previous government, the noted patriot the MP. The administration makes a decision, the national judiciary validates it, then a international entity contests it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

The Russian Lawsuit

On the same day that the court on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know little of the case at present, but it seems likely that he will utilise the tribunal to fight the sanctions the UK imposed on him following the war in Ukraine. He has already started suing a small nation on these grounds, claiming $16bn: half that nation's yearly income. Among the counsel on his side? a prominent lawyer, spouse of the ex-UK leader.

International law scholars contend that the EU’s hesitation in using frozen Russian assets as guarantee for its financial support package is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over democratic administrations may be obstructing the money Ukraine urgently requires.

Empty Promises and Escalating Threats

The public was told that such things wouldn’t happen. Years ago, a government leader, championing the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade deal upon trade deal and we have never seen a problem in the past.” An adviser on this issue labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations had to worry about such legal actions. Predictions that “once firms grasp the influence they’ve been granted, they will turn their attention from the weak nations to the strong ones” were met with general mockery.

That warning is now a reality. In the current period, oil and gas and mining firms have initiated a record number of claims against nations rich and poor, contesting – like the example of the Cumbrian coalmine – official measures to stop environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP