🔗 Share this article

What is your reckon our system of government operates? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. That's it. However, that used to be how it operated in the past. Those days are over.

The Emergence of Offshore Tribunals

Nowadays, overseas companies, or the oligarchs behind them, are able to litigate against governments for the policies they pass, at private courts staffed by commercial attorneys. Such disputes are held behind closed doors. In contrast to domestic courts, these panels provide no right of appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, including businesses headquartered in this country. Access is granted only to businesses registered abroad.

If a tribunal finds that a government measure might diminish the corporation’s projected profits, it has the power to grant damages of vast sums, running into billions.

This compensation are based not on tangible damages but funds the panel members determine the company could potentially have made. The administration may have to abandon its policy. It is discouraged from introducing similar legislation in that area, for fear of facing litigation.

A Mechanism Running Rampant

Record numbers of disputes are being initiated, as corporations take cues from each other, and investment funds finance suits for a share of a portion of the takings. The outcome? Democratic sovereignty and democracy are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the choices taken by legislatures is that this clause has been incorporated – without democratic mandate, and often in conditions of extreme secrecy – within international trade agreements.

A Real-World Example: The Cumbrian Coalmine

Last year, environmental campaigners secured a significant win at the senior court. The presiding officer ruled that plans to open the first deep coalmine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine could have no impact on climate commitments. The incoming administration subsequently revoked the permission the previous administration had granted. Currently, this legal outcome could be compromised by an secret arbitration panel reporting to no one but the companies petitioning it.

In August, a firm whose final controllers reside in the Cayman Islands lodged a claim versus the UK government. Recently a tribunal in Washington DC was established to hear it.

This firm is litigating against the UK for the profits it would have generated if the mine had been permitted to commence operations. The public has little idea how much this might be. Who is representing it in opposition to the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court supports it, then a international entity contests it through an secretive private court, and a elected official acts on its behalf.

The Russian Challenge

Concurrently that the court on the coalmine case was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he’ll use the ISDS mechanism to fight the penalties the UK levied against him following the war in Ukraine. He has already initiated proceedings against Luxembourg on these grounds, claiming $16bn: half that state's annual revenue. Included in the lawyers on his side? the wife of a former prime minister, married to the former British prime minister.

Legal experts believe that the EU’s procrastination in utilising seized state funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

Empty Promises and Mounting Costs

Politicians promised that these scenarios wouldn’t happen. Previously, a senior politician, advocating for the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement after trade deal and there has never been a issue in the past.” A consultant on this matter described activists of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries needed to fear ISDS claims. Warnings that “once firms begin to understand the power they’ve been granted, they will turn their attention from the poorer states to the developed economies” were dismissed with general mockery.

That prediction has now materialised. Recently, oil and gas and mining firms have lodged a unprecedented number of suits against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to halt global warming. Corporations have to date won vast sums via ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP