🔗 Share this article

How do you reckon our democratic process works? It could be similar to this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills become law. The law is maintained by the courts. End of story. However, that’s how it operated in the past. Not anymore.

The Rise of Offshore Tribunals

In the modern era, foreign corporations, or the wealthy individuals who own them, have the power to sue governments for the policies 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 provide no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. They are open only to corporations operating from foreign soil.

When a secret court finds that a law or policy may compromise the corporation’s expected profits, it may order compensation of hundreds of millions, running into billions.

These awards represent not tangible damages but money the arbitrators determine the company would perhaps have made. The administration could be forced to rescind the measure. It will be deterred from introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of cases are being initiated, as firms observe each other, and hedge funds fund legal actions for a share of a share of the settlements. The outcome? National sovereignty and popular rule are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the choices made by parliaments is that this provision has been written – without democratic mandate, and typically amid a climate of profound opacity – into international trade agreements.

A Specific Example: The Cumbrian Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the high court. The presiding officer ruled that proposals to dig the first new deep coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the bizarre claim that the mine would have zero effect on climate commitments. The new government later cancelled the licence the Tories had issued. Now, this victory faces being overturned by an secret arbitration panel reporting to exclusively the companies petitioning it.

In August, a corporate entity whose beneficial owners are located in the Cayman Islands lodged a claim versus the UK government. Recently a arbitration panel in the US capital was convened to consider the case.

The company is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. The public has little idea how much this might be. Which individual is representing it against the British government? A member of parliament, and former attorney-general in the previous government, that great patriot the MP. The administration passes a law, the domestic court validates it, then a foreign company challenges it through an unaccountable arbitration panel, and a elected official works for its behalf.

An Oligarch's Lawsuit

On the same day that the panel on the mining lawsuit was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are little of the case at present, but it is highly possible that he’ll use the arbitration process to fight the penalties the UK imposed on him after the Russian aggression. He has filed a claim against a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of nation's annual revenue. Part of the lawyers on his side? the wife of a former prime minister, married to the previous PM.

International law scholars believe that the EU’s delay in leveraging immobilised state funds as security for its financial support package is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over elected governments could be blocking the finance Ukraine desperately needs.

False Assurances and Mounting Risks

We were assured that such things wouldn’t happen. Years ago, a former prime minister, championing the most significant and hazardous of all investment pacts, told us: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” An adviser on this matter described activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear such legal actions. Cautionary notes that “as corporations grasp the power they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were met with widespread derision.

That prediction is now a reality. In the current period, fossil fuel and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Corporations have so far won $114bn through ISDS, of which energy giants have been awarded the majority. That represents the combined GDP