🔗 Share this article

Can you reckon our political system functions? It could be something like this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. Legislation is upheld by the courts. That's it. Yet, that’s how it used to work. Those days are over.

The Rise of Offshore Courts

Nowadays, international firms, along with the billionaires that control them, can sue governments for the laws they pass, at offshore tribunals made up of business advocates. These proceedings are held away from public scrutiny. In contrast to domestic courts, these tribunals allow no avenue for appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even companies headquartered in this country. They are open exclusively to entities registered abroad.

Should an arbitration panel finds that a legislative action may compromise the corporation’s expected profits, it may order damages of hundreds of millions, even billions.

These sums constitute not tangible damages but money the arbitrators decide the company might otherwise have made. The government might be compelled to drop the legislation. It will be discouraged from introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of cases are being filed, as firms take cues from each other, and investment funds finance suits in return for a portion of the awards. The result? Democratic sovereignty and popular rule are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the rulings made by elected bodies is that this clause has been written – absent public approval, and frequently under a climate of total confidentiality – within trade treaties.

A Real-World Instance: The UK Coalmine

Twelve months ago, activists secured a significant win at the high court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no impact on national carbon targets. The incoming administration then withdrew the licence the previous administration had granted. Currently, this victory is under threat by an secret arbitration panel reporting to exclusively the companies bringing the case.

During August, a company whose ultimate owners are located in the tax haven lodged a claim challenging the UK government. The previous week a arbitration panel in the US capital was set up to consider the case.

The claimant is suing the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has no clear indication how much this might be. Who is serving as its counsel against the UK administration? An elected representative, and ex-law officer in the Conservative government, the noted patriot the MP. The state makes a decision, the national judiciary validates it, then a foreign company challenges it through an undemocratic private court, and a elected official works for its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case at present, but it is highly possible that he’ll use the ISDS mechanism to contest the penalties the UK levied against him subsequent to the Russian aggression. He has initiated proceedings against Luxembourg on these grounds, seeking a colossal sum: equivalent to half of government’s yearly income. Among the counsel representing him there? a prominent lawyer, wife of the previous PM.

Legal experts believe that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its financial support package is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations could be blocking the money Ukraine critically depends on.

Misleading Claims and Mounting Threats

We were assured that such things were not possible. Previously, a senior politician, promoting the most significant and hazardous of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this topic accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that exclusively weaker states needed to fear such legal actions. Predictions that “as corporations begin to understand the influence bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were dismissed with general mockery.

That warning has now materialised. In the current period, fossil fuel and extraction companies have filed a record number of cases against nations rich and poor, challenging – similar to the Cumbrian coalmine – government attempts to prevent global warming. Corporations have thus far won $114bn by using ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP