🔗 Share this article

What is your perceive our democratic process functions? It could be similar to this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills are enacted as law. The law is maintained by the courts. That's it. Well, that used to be how it operated in the past. No longer.

The Rise of Offshore Courts

Today, international firms, along with the oligarchs behind them, are able to litigate against nation states for the policies they pass, at offshore tribunals made up of corporate lawyers. Such disputes are held behind closed doors. In contrast to domestic courts, these bodies grant no avenue for appeal or judicial review. The general public are unable to file a case to them, just as our government, including companies operating from this country. The door is open only to corporations based overseas.

When a secret court determines that a law or policy could harm the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

These sums represent not actual losses but compensation the arbitrators decide the company would perhaps have made. The government could be forced to rescind the measure. It is hesitant to introducing similar legislation along the same lines, for fear of being sued.

A System Growing Exponentially

Record numbers of disputes are being initiated, as firms take cues from each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The result? National sovereignty and democratic governance are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the rulings enacted by elected bodies is that this provision has been inserted – absent public approval, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Specific Case: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the high court. The judge determined that plans to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The new government later cancelled the consent the former government had granted. Today, this legal outcome faces being overturned by an secret arbitration panel answering to only the entities filing the suit.

Last August, a firm whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. The previous week a arbitration panel in the United States was set up to adjudicate on it.

This firm is suing the UK for the profits it would have generated if the mine had been permitted to commence operations. We have little idea how much this might be. Who is representing it challenging the state? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The state passes a law, the domestic court validates it, then a international entity contests it through an secretive private court, and a member of our parliament represents its behalf.

A Sanctions Challenge

On the same day that the tribunal on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows scarce of the case at present, but it seems likely that he’ll use the arbitration process to contest the restrictions the UK levied against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, demanding sixteen billion dollars: equivalent to half of government’s yearly income. Included in the legal team on his side? a prominent lawyer, wife of the ex-UK leader.

International law scholars contend that the EU’s hesitation in using frozen Russian assets as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations may be obstructing the money Ukraine critically depends on.

Empty Promises and Escalating Threats

We were assured that these events were not possible. Previously, a government leader, promoting the most significant and hazardous of all investment pacts, told us: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” An adviser on this topic accused campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Warnings that “once firms begin to understand the influence they now possess, they will turn their attention from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction has now materialised. This year, oil and gas and mining firms have filed a record number of cases against nations both wealthy and developing, contesting – similar to the Whitehaven project – official measures to prevent global warming. Corporations have thus far won $114bn via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP