🔗 Share this article

How do you perceive our system of government works? It could be along the lines of this. We elect MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. That's it. Well, that was how it once functioned. Not anymore.

The Rise of Secret Tribunals

Nowadays, foreign corporations, along with the wealthy individuals behind them, can sue governments for the policies they pass, at offshore tribunals composed of business advocates. These proceedings are held behind closed doors. Differing from national judiciaries, these bodies grant no right of appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even businesses operating from this country. The door is open only to entities based overseas.

If a tribunal finds that a government measure could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These awards are based not on tangible damages but funds the panel members decide the company might otherwise have made. The state could be forced to abandon its policy. It is deterred from enacting future policies in that area, worried about facing litigation.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as corporations learn from each other, and private equity bankroll lawsuits in return for a cut of the settlements. The outcome? Democratic sovereignty and democratic governance are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the choices taken by legislatures is that this clause has been inserted – absent public approval, and typically amid an atmosphere of profound opacity – within trade treaties.

A Concrete Case: The Whitehaven Coalmine

A year ago, a conservation group secured a significant win at the high court. The presiding officer ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have zero effect on our carbon budgets. The new government later cancelled the consent the Tories had approved. Today, this success faces being overturned by an offshore tribunal reporting to only the entities filing the suit.

In August, a corporate entity whose final controllers are located in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in Washington DC was established to consider the case.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to proceed. We have no idea how much this sum represents. What legal team is representing it challenging the state? A member of parliament, and ex-law officer in the outgoing administration, that great patriot the MP. The administration enacts a policy, the domestic court upholds it, then a international entity contests it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Challenge

Concurrently that the court on the coalmine case was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case so far, but it is highly possible that he will utilise the tribunal to fight the sanctions the UK imposed on him after the Russian aggression. He has already started suing Luxembourg for this reason, demanding sixteen billion dollars: half that government’s yearly budget. Included in the legal team representing him there? Cherie Blair, spouse of the former British prime minister.

International law scholars believe that the EU’s procrastination in using frozen Russian assets as security for its financial support package arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, secretive influence over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Escalating Costs

We were assured that these scenarios were not possible. In 2014, a government leader, championing the largest and riskiest of all investment pacts, declared: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An expert on this topic accused activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear such legal actions. Warnings that “when companies grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by widespread derision.

That threat is now a reality. This year, fossil fuel and mining firms have initiated a record number of claims against nations both wealthy and developing, challenging – similar to the Whitehaven project – official measures to prevent climate breakdown. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP