🔗 Share this article

Can you understand our political system works? It could be similar to this. We elect MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. That's it. However, that used to be how it used to work. Those days are over.

The Rise of Offshore Tribunals

Today, foreign corporations, or the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at private courts composed of commercial attorneys. The cases are conducted behind closed doors. Differing from national judiciaries, these bodies grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, or even businesses based in this country. They are open exclusively to entities based overseas.

When a secret court determines that a government measure could harm the corporation’s anticipated profits, it may order compensation of hundreds of millions of pounds, running into billions.

This compensation are based not on tangible damages but money the tribunal officials decide 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 facing litigation.

A System Running Rampant

Historically high figures of cases are being brought, as companies learn from each other, and hedge funds fund legal actions for a share of a share of the settlements. The outcome? National sovereignty and democracy are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override national legislation and the decisions taken by parliaments is that this clause has been incorporated – absent public approval, and often in conditions of total confidentiality – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coalmine

A year ago, activists achieved a major legal triumph at the senior court. The justice found that schemes to excavate the first major coal mine in the UK for a generation, in northwest England, had been illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine would have no impact on national carbon targets. The incoming administration later cancelled the permission the previous administration had issued. Today, this legal outcome faces being overturned by an offshore tribunal answering to no one but the companies filing the suit.

In August, a firm whose beneficial owners reside in the tax haven initiated proceedings challenging the UK government. Recently a dispute settlement body in the United States was established to hear it.

This firm is litigating against the UK for the revenue it could have earned if the mine had received permission to commence operations. The public has no clear indication how much this could amount to. Who is representing it against the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The administration makes a decision, the national judiciary validates it, then a international entity challenges it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Lawsuit

On the same day that the panel on the coalmine case was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case so far, but it seems likely that he will utilise the tribunal to contest the sanctions the UK imposed on him subsequent to the war in Ukraine. He has previously started suing Luxembourg for this reason, demanding sixteen billion dollars: half that state's yearly income. Part of the counsel acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in using frozen state funds as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states might be preventing the finance Ukraine urgently requires.

Misleading Claims and Mounting Threats

Politicians promised that such things wouldn’t happen. In 2014, a former prime minister, promoting the biggest and most dangerous of all these agreements, declared: “We’ve signed investment treaty upon trade deal and we have never seen a problem in the past.” An expert on this topic labelled critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about such legal actions. Warnings that “as corporations grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were met with general mockery.

That warning is now a reality. Recently, oil and gas and extraction companies have lodged a historic level of claims against nations across the economic spectrum, opposing – like the example of the Whitehaven project – state efforts to halt global warming. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP