🔗 Share this article

What is your reckon our political system operates? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills become law. Legislation is maintained by the courts. That's it. However, that’s how it once functioned. Those days are over.

The Advent of Offshore Courts

Nowadays, international firms, along with the billionaires that control them, are able to litigate against governments for the regulations they pass, at private courts made up of business advocates. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these panels provide no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses operating from this country. Access is granted exclusively to corporations operating from foreign soil.

Should an arbitration panel finds that a law or policy may compromise the corporation’s expected profits, it may order compensation of vast sums, running into billions.

These awards are based not on actual losses but compensation the tribunal officials determine the company might otherwise have made. The administration may have to drop the legislation. It is deterred from introducing similar legislation in that area, worried about being sued.

A Mechanism Running Rampant

Historically high figures of cases are being brought, as firms observe each other, and investment funds finance suits in return for a share of the settlements. The outcome? National sovereignty and democracy are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the rulings made by parliaments is that this stipulation has been incorporated – without democratic mandate, and often in an atmosphere of profound opacity – into international trade agreements.

A Real-World Instance: The Cumbrian Coalmine

Last year, environmental campaigners achieved a major legal triumph at the high court. The judge determined that schemes to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration subsequently revoked the licence the Tories had issued. Currently, this victory could be compromised by an offshore tribunal answering to no one but the entities filing the suit.

Last August, a firm whose final controllers are located in the Cayman Islands filed a lawsuit versus the UK government. Recently a dispute settlement body in the United States was set up to consider the case.

The company is litigating against the UK for the money it might have made if the mine had been permitted to go ahead. The public has no clear indication how much this might be. Which individual is representing it challenging the British government? A member of parliament, and ex-law officer in the outgoing administration, that great patriot the MP. The state enacts a policy, the national judiciary supports it, then a overseas corporation disputes it through an secretive private court, and a sitting MP represents its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows little of the case at present, but it appears probable that he may employ the tribunal to fight the restrictions the UK enacted against him following the war in Ukraine. He has started suing Luxembourg for this reason, seeking $16bn: an amount representing half state's yearly income. Among the legal team representing him there? Cherie Blair, wife of the previous PM.

Legal experts argue that the EU’s delay in using frozen Russian assets as collateral for its financial support package is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations may be obstructing the money Ukraine desperately needs.

Misleading Claims and Escalating Threats

Politicians promised that such things were not possible. Years ago, a government leader, championing the most significant and hazardous of all such treaties, stated: “The UK has signed trade deal after trade deal and we have never seen a issue in the past.” An expert on this issue labelled activists of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Predictions that “when companies grasp the influence they’ve been granted, they will turn their attention from the poorer states to the strong ones” were met with scepticism.

That threat has come to pass. This year, energy and mining firms have initiated a unprecedented number of claims against nations rich and poor, challenging – like the example of the UK mine – government attempts to prevent environmental catastrophe. Firms have to date won vast sums via ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP