🔗 Share this article

What is your understand our political system operates? Perhaps along the lines of this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. That's it. Well, that was how it operated in the past. Those days are over.

The Advent of Offshore Tribunals

Nowadays, international firms, or the wealthy individuals that control them, are able to litigate against elected administrations for the laws they pass, at offshore tribunals composed of corporate lawyers. The cases are held in secret. In contrast to domestic courts, these tribunals grant no right of appeal or legal review. You or I cannot take a case to them, just as our government, or even companies based in this country. Access is granted only to businesses based overseas.

When a secret court finds that a law or policy might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

This compensation are based not on tangible damages but compensation the tribunal officials determine the company might otherwise have made. The state may have to abandon its policy. It is hesitant to introducing similar legislation along the same lines, due to the risk of being sued.

A System Running Rampant

Historically high figures of disputes are being initiated, as firms learn from each other, and hedge funds finance suits for a share of a cut of the settlements. The outcome? National sovereignty and democratic governance are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can supersede domestic law and the decisions taken by elected bodies is that this stipulation has been inserted – absent public approval, and often in a climate of total confidentiality – into trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Last year, activists secured a significant win at the High Court. The judge determined that schemes to open the first new deep coal mine in the UK for 30 years, in northwest England, had been unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no impact on national carbon targets. The new government later cancelled the licence the former government had granted. Today, this legal outcome faces being overturned by an foreign court accountable to only the entities petitioning it.

During August, a firm whose final controllers are based in the tax haven lodged a claim against the UK government. The previous week a dispute settlement body in the United States was convened to hear it.

This firm is seeking compensation from 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 sum represents. Which individual is representing it challenging the state? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration passes a law, the domestic court supports it, then a overseas corporation challenges it through an secretive arbitration panel, and a elected official represents its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case so far, but it appears probable that he’ll use the arbitration process to contest the penalties the UK imposed on him following the Russian aggression. He has started suing Luxembourg for this reason, claiming a colossal sum: equivalent to half of nation's annual revenue. Part of the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over sovereign states may be obstructing the finance Ukraine critically depends on.

Empty Promises and Growing Costs

The public was told that these scenarios wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all such treaties, declared: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” A consultant on this topic described activists of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about these lawsuits. Warnings that “when companies start to realise the authority they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were dismissed with general mockery.

That threat is now a reality. This year, energy and mining firms have lodged a unprecedented number of claims against nations across the economic spectrum, challenging – similar to the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have to date won vast sums through ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP