🔗 Share this article

What is your reckon our political system functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Statutes is maintained by the courts. That's it. Yet, that was how it once functioned. No longer.

The Rise of Offshore Courts

Today, international firms, or the billionaires that control them, have the power to sue nation states for the laws they pass, at secret arbitration panels staffed by corporate lawyers. The cases take place behind closed doors. In contrast to domestic courts, these tribunals provide no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even businesses operating from this country. Access is granted only to entities based overseas.

Should an arbitration panel determines that a government measure could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions, even billions.

These awards constitute not real financial harm but money the arbitrators determine the company might otherwise have made. The government may have to drop the legislation. It will be deterred from passing future laws along the same lines, for fear of facing litigation.

A System Growing Exponentially

Record numbers of cases are being filed, as firms take cues from each other, and private equity finance suits for a share of a cut of the awards. The consequence? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override domestic law and the choices enacted by elected bodies is that this clause has been written – without democratic mandate, and often in conditions of extreme secrecy – within international trade agreements.

A Real-World Case: The Whitehaven Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The judge found that proposals 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 endorsed the questionable argument that the mine could have no impact on our carbon budgets. The Labour government then withdrew the permission the former government had issued. Today, this legal outcome is under threat by an secret arbitration panel reporting to exclusively the companies bringing the case.

Last August, a firm whose final controllers are located in the offshore financial centre initiated proceedings versus the UK government. The previous week a arbitration panel in the US capital was convened to hear it.

This firm is litigating against the UK for the profits it could have earned if the mine had been allowed to go ahead. We have little idea how much this could amount to. What legal team is serving as its counsel against the UK administration? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The state makes a decision, the national judiciary supports it, then a foreign company disputes it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coal mine dispute was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case at present, but it appears probable that he’ll use the ISDS mechanism to fight the sanctions the UK enacted against him following the war in Ukraine. He has already started suing Luxembourg for this reason, demanding $16bn: equivalent to half of government’s yearly income. Part of the legal team acting for him in that case? the wife of a former prime minister, married to the former British prime minister.

Trade specialists believe that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, secretive influence over democratic administrations might be preventing the money Ukraine desperately needs.

Misleading Claims and Mounting Costs

Politicians promised that these scenarios could not occur. Years ago, a former prime minister, championing the most significant and hazardous of all such treaties, told us: “Britain has agreed to trade deal upon trade deal and there has never been a case in the past.” An expert on this issue accused campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries should be concerned by ISDS claims. Warnings that “as corporations start to realise the authority bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were dismissed with scepticism.

That warning has now materialised. In the current period, fossil fuel and resource corporations have initiated a record number of claims against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to halt global warming. Corporations have so far won $114bn via ISDS, of which energy giants have been awarded the majority. That represents the combined GDP