🔗 Share this article

Can you reckon our political system functions? Perhaps something like this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills become law. Statutes are enforced by the courts. End of story. Well, that used to be how it once functioned. Not anymore.

The Emergence of Offshore Courts

Today, overseas companies, and the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are held behind closed doors. In contrast to domestic courts, these bodies allow no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, or even enterprises operating from this country. Access is granted solely for corporations registered abroad.

If a tribunal determines that a law or policy may compromise the corporation’s projected profits, it has the power to grant damages of hundreds of millions, potentially billions.

These awards constitute not tangible damages but money the tribunal officials determine the company could potentially have made. The administration may have to drop the legislation. It will be hesitant to passing future laws in that area, worried about being sued.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being initiated, as corporations learn from each other, and hedge funds fund legal actions in exchange for a cut of the takings. The result? National sovereignty and democracy are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the choices enacted by legislatures is that this provision has been written – without public consent, and typically amid an atmosphere of extreme secrecy – within trade treaties.

A Specific Case: The Cumbrian Coalmine

A year ago, activists won a great victory at the senior court. The justice ruled that proposals to dig the first new deep coal mine in the UK for 30 years, in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine could have zero effect on national carbon targets. The new government subsequently revoked the consent the previous administration had granted. Now, this victory is under threat by an foreign court reporting to no one but the companies bringing the case.

Last August, a firm whose ultimate owners are located in the offshore financial centre filed a lawsuit challenging the UK government. Recently a arbitration panel in the United States was convened to hear it.

The company is litigating against the UK for the profits it would have generated if the mine had received permission to go ahead. The public has no idea how much this sum represents. Which individual is serving as its counsel against the British government? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot the MP. The state makes a decision, the domestic court upholds it, then a international entity contests it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Challenge

On the same day that the tribunal on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it seems likely that he may employ the ISDS mechanism to fight the sanctions the UK enacted against him following the invasion of Ukraine. He has initiated proceedings against a small nation for this reason, demanding a colossal sum: an amount representing half nation's yearly budget. Included in the legal team representing him there? the wife of a former prime minister, spouse of the previous PM.

Trade specialists argue that the EU’s procrastination in using frozen Russian assets as collateral for its loan to Ukraine is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over elected governments may be obstructing the finance Ukraine urgently requires.

Empty Promises and Growing Costs

We were assured that these events wouldn’t happen. In 2014, a government leader, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed trade deal after trade deal and there has never been a problem in the past.” An expert on this matter labelled critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear such legal actions. Predictions that “when companies grasp the authority they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were dismissed with general mockery.

That warning has come to pass. This year, oil and gas and extraction companies have lodged a historic level of claims against nations rich and poor, challenging – like the example of the Cumbrian coalmine – official measures to prevent global warming. Companies have to date won vast sums by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP