🔗 Share this article

How do you reckon our political system functions? Perhaps similar to this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. Statutes are enforced by the courts. That's it. Yet, that’s how it used to work. Those days are over.

The Advent of Offshore Arbitration Panels

In the modern era, international firms, along with the billionaires behind them, can sue nation states for the policies they pass, at private courts composed of corporate lawyers. The cases are held away from public scrutiny. In contrast to domestic courts, these bodies allow no right of appeal or oversight by judges. You or I cannot take a case to them, just as our government, or even companies headquartered in this country. The door is open exclusively to businesses based overseas.

Should an arbitration panel rules that a legislative action may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions, potentially billions.

These awards constitute not real financial harm but compensation the tribunal officials determine the company would perhaps have made. The state may have to abandon its policy. It is discouraged from enacting future policies along the same lines, for fear of being sued.

A System Growing Exponentially

Historically high figures of disputes are being brought, as corporations take cues from each other, and private equity fund legal actions for a share of a portion of the settlements. The result? Sovereignty and democratic governance are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the decisions made by parliaments is that this clause has been inserted – without democratic mandate, and typically amid a climate of profound opacity – within bilateral investment treaties.

A Real-World Example: The UK Coalmine

Last year, a conservation group achieved a major legal triumph at the High Court. The judge ruled that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the permission the former government had granted. Now, this legal outcome faces being overturned by an offshore tribunal reporting to no one but the companies filing the suit.

During August, a firm whose beneficial owners are based in the offshore financial centre lodged a claim challenging the UK government. Last week a dispute settlement body in the United States was convened to adjudicate on it.

The claimant is suing the UK for the money it might have made if the mine had been permitted to go ahead. We have little idea how much this could amount to. Who is representing it challenging the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The state makes a decision, the national judiciary supports it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case so far, but it is highly possible that he will utilise the ISDS mechanism to contest the restrictions the UK imposed on him after the invasion of Ukraine. He has previously started suing Luxembourg on these grounds, seeking a colossal sum: an amount representing half state's annual revenue. Among the counsel on his side? Cherie Blair, spouse of the ex-UK leader.

Trade specialists argue that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Threats

The public was told that these scenarios were not possible. In 2014, a senior politician, championing the biggest and most dangerous of all investment pacts, told us: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” An adviser on this issue labelled critics of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear ISDS claims. Predictions that “as corporations begin to understand the influence they now possess, they will turn their attention from the weak nations to the strong ones” were greeted by general mockery.

That warning has come to pass. Recently, fossil fuel and resource corporations have initiated a record number of suits against nations both wealthy and developing, challenging – as in the case of the UK mine – official measures to halt global warming. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured the majority. That represents the combined GDP