🔗 Share this article

How do you reckon our democratic process operates? Perhaps similar to this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills pass into law. The law is maintained by the courts. Simple as that. However, that used to be how it operated in the past. Those days are over.

The Emergence of Offshore Courts

In the modern era, foreign corporations, along with the billionaires behind them, have the power to sue nation states for the regulations they pass, at private courts made up of commercial attorneys. These proceedings are held behind closed doors. Unlike our courts, these tribunals provide no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. They are open exclusively to corporations registered abroad.

Should an arbitration panel finds that a government measure may compromise the corporation’s expected profits, it can award compensation of vast sums, even billions.

This compensation constitute not real financial harm but funds the tribunal officials determine the company might otherwise have made. The government could be forced to abandon its policy. It becomes hesitant to enacting future policies along the same lines, due to the risk of being sued.

A Process Spiralling Out of Control

Record numbers of cases are being initiated, as firms learn from each other, and private equity fund legal actions for a share of a share of the settlements. The result? Democratic sovereignty and democratic governance are now too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the decisions enacted by elected bodies is that this clause has been written – without public consent, and typically amid conditions of extreme secrecy – within trade treaties.

A Specific Instance: The Whitehaven Coalmine

A year ago, environmental campaigners won a great victory at the High Court. The judge ruled that schemes to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine would have had no impact on national carbon targets. The Labour government then withdrew the consent the former government had granted. Today, this success could be compromised by an offshore tribunal accountable to exclusively the entities petitioning it.

In August, a corporate entity whose final controllers are located in the offshore financial centre initiated proceedings versus the UK government. Recently a dispute settlement body in the US capital was established to consider the case.

The company is litigating against the UK for the profits it might have made if the mine had been permitted to go ahead. Citizens have no idea how much this might be. Who is acting on its behalf challenging the British government? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The state makes a decision, the domestic court supports it, then a overseas corporation challenges it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the court on the coal mine dispute was convened, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case so far, but it is highly possible that he will utilise the arbitration process to contest the restrictions the UK enacted against him after the Russian aggression. He has initiated proceedings against Luxembourg for this reason, seeking a colossal sum: equivalent to half of government’s yearly budget. Part of the lawyers acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Legal experts argue that the EU’s delay in utilising seized state funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over elected governments might be preventing the finance Ukraine urgently requires.

False Assurances and Escalating Costs

We were assured that these events were not possible. Previously, a former prime minister, advocating for the biggest and most dangerous of all these agreements, told us: “Britain has agreed to trade agreement after trade deal and we have never seen a problem in the past.” An adviser on this matter accused critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “once firms start to realise the authority bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That threat has come to pass. In the current period, energy and extraction companies have filed a record number of suits against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – government attempts to stop global warming. Corporations have so far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured $84bn. That represents the combined GDP