🔗 Share this article

Can you perceive our democratic process functions? Perhaps something like this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. The law are enforced by the courts. End of story. Well, that’s how it used to work. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, along with the oligarchs behind them, can sue nation states for the policies they pass, at offshore tribunals made up of corporate lawyers. Such disputes take place behind closed doors. Unlike our courts, these bodies grant no right of appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even businesses headquartered in this country. Access is granted only to businesses operating from foreign soil.

Should an arbitration panel rules that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, even billions.

These awards constitute not tangible damages but funds the panel members determine the company might otherwise have made. The government could be forced to abandon its policy. It is hesitant to passing future laws in that area, for fear of being sued.

A System Running Rampant

Historically high figures of legal actions are being brought, as firms observe each other, and investment funds bankroll lawsuits in return for a share of the takings. The consequence? Sovereignty and democracy are now unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the decisions enacted by elected bodies is that this clause has been written – without democratic mandate, and typically amid an atmosphere of total confidentiality – into international trade agreements.

A Specific Example: The Whitehaven Coal Mine

Twelve months ago, a conservation group secured a significant win at the High Court. The judge ruled that proposals to open the first major coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine would have had no impact on our carbon budgets. The incoming administration subsequently revoked the consent the Tories had granted. Currently, this legal outcome is under threat by an offshore tribunal reporting to exclusively the companies petitioning it.

Last August, a corporate entity whose ultimate owners are based in the tax haven lodged a claim challenging the UK government. Last week a dispute settlement body in the US capital was convened to adjudicate on it.

The claimant is litigating against the UK for the revenue it would have generated if the mine had received permission to commence operations. We have no idea how much this might be. Who is representing it against the British government? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot the MP. The administration passes a law, the domestic court validates it, then a foreign company disputes it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Challenge

On the same day that the panel on the mining lawsuit was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case so far, but it appears probable that he will utilise the tribunal to contest the sanctions the UK enacted against him after the Russian aggression. He has previously initiated proceedings against another European state with similar intent, claiming a colossal sum: an amount representing half nation's yearly income. Among the legal team representing him there? a prominent lawyer, wife of the former British prime minister.

Trade specialists argue that the EU’s delay in leveraging immobilised state funds as security 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 extraordinary, undemocratic power over sovereign states may be obstructing the funds Ukraine critically depends on.

False Assurances and Growing Risks

The public was told that these scenarios wouldn’t happen. Previously, a former prime minister, championing the biggest and most dangerous of all such treaties, declared: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An adviser on this matter accused critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations had to worry about these lawsuits. Predictions that “when companies begin to understand the power they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were greeted by widespread derision.

That threat has now materialised. Recently, fossil fuel and extraction companies have initiated a unprecedented number of cases against nations rich and poor, challenging – like the example of the Whitehaven project – official measures to prevent global warming. Firms have so far won $114bn by using ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP