🔗 Share this article

What is your reckon our political system operates? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills become law. The law is maintained by the courts. That's it. However, that’s how it used to work. Those days are over.

The Rise of Offshore Tribunals

In the modern era, foreign corporations, and the oligarchs who own them, are able to litigate against nation states for the laws they pass, at private courts staffed by commercial attorneys. Such disputes are held behind closed doors. In contrast to domestic courts, these tribunals grant no opportunity to appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, including enterprises operating from this country. The door is open solely for corporations based overseas.

Should an arbitration panel finds that a government measure might diminish the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

This compensation constitute not tangible damages but money the arbitrators conclude the company would perhaps have made. The government may have to rescind the measure. It becomes hesitant to passing future laws of a similar nature, worried about incurring a lawsuit.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as companies learn from each other, and investment funds bankroll lawsuits in return for a portion of the takings. The outcome? National sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the rulings taken by elected bodies is that this stipulation has been inserted – absent public approval, and frequently under conditions of total confidentiality – inside trade treaties.

A Real-World Instance: The Cumbrian Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The judge determined that schemes to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine would have zero effect on our carbon budgets. The new government later cancelled the permission the former government had issued. Now, this legal outcome could be compromised by an secret arbitration panel accountable to no one but the companies petitioning it.

In August, a company whose ultimate owners reside in the offshore financial centre initiated proceedings against the UK government. Recently a arbitration panel in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the money it could have earned if the mine had received permission to proceed. The public has no idea how much this sum represents. What legal team is representing it against the state? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the national judiciary validates it, then a overseas corporation contests it through an secretive offshore tribunal, and a elected official represents its behalf.

A Sanctions Challenge

Concurrently that the panel on the coalmine case was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case at present, but it appears probable that he may employ the tribunal to fight the restrictions the UK imposed on him following the invasion of Ukraine. He has already filed a claim against a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of nation's yearly budget. Part of the counsel on his side? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars believe that the EU’s procrastination in using frozen oligarchs' funds as security for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This remarkable, unaccountable authority over elected governments could be blocking the finance Ukraine desperately needs.

False Assurances and Growing Risks

Politicians promised that these events wouldn’t happen. In 2014, a government leader, advocating for the largest and riskiest of all such treaties, told us: “We’ve signed trade agreement after trade deal and there has not been a problem in the past.” An expert on this topic labelled critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were dismissed with general mockery.

That prediction has come to pass. In the current period, oil and gas and mining firms have filed a historic level of claims against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured the majority. That represents the combined GDP