🔗 Share this article

What is your perceive our system of government operates? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills pass into law. Legislation is upheld by the courts. Simple as that. However, that used to be how it operated in the past. No longer.

The Rise of Offshore Tribunals

Nowadays, international firms, along with the oligarchs behind them, have the power to sue nation states for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. The cases take place away from public scrutiny. Differing from national judiciaries, these bodies grant no right of appeal or legal review. You or I cannot take a case to them, just as our government, including businesses operating from this country. They are open only to entities based overseas.

Should an arbitration panel rules that a law or policy may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

These awards are based not on real financial harm but funds the arbitrators conclude the company might otherwise have made. The state may have to rescind the measure. It becomes deterred from passing future laws in that area, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the awards. The outcome? Democratic sovereignty and democratic governance are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the choices taken by legislatures is that this provision has been written – without public consent, and typically amid an atmosphere of total confidentiality – within trade treaties.

A Specific Instance: The Whitehaven Coalmine

Last year, environmental campaigners won a great victory at the senior court. The justice determined that proposals to excavate the first deep coalmine in the UK for a generation, in northwest England, were illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have had no impact on national carbon targets. The new government then withdrew the consent the Tories had approved. Currently, this victory faces being overturned by an offshore tribunal accountable to no one but the corporations filing the suit.

Last August, a firm whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. The previous week a dispute settlement body in the United States was established to adjudicate on it.

The company is litigating against the UK for the money it might have made if the mine had received permission to proceed. Citizens have no clear indication how much this could amount to. What legal team is serving as its counsel against the state? A member of parliament, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The administration passes a law, the high court upholds it, then a foreign company challenges it through an unaccountable arbitration panel, and a sitting MP represents its behalf.

The Russian Lawsuit

On the same day that the panel on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it is highly possible that he’ll use the arbitration process to fight the sanctions the UK imposed on him following the invasion of Ukraine. He has previously filed a claim against a small nation with similar intent, claiming $16bn: equivalent to half of government’s yearly income. Among the legal team on his side? Cherie Blair, wife of the ex-UK leader.

International law scholars argue that the EU’s delay in leveraging immobilised state funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, unaccountable authority over elected governments might be preventing the funds Ukraine critically depends on.

Empty Promises and Growing Risks

We were assured that these events were not possible. Previously, a government leader, promoting the largest and riskiest of all these agreements, stated: “The UK has signed trade agreement upon trade deal and we have never seen a problem in the past.” A consultant on this issue described activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about these lawsuits. Warnings that “when companies start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were dismissed with scepticism.

That prediction has come to pass. Recently, oil and gas and mining firms have lodged a record number of cases against nations rich and poor, contesting – as in the case of the Whitehaven project – official measures to stop climate breakdown. Corporations have to date won $114bn via ISDS, of which oil majors have obtained the majority. That represents the combined GDP