🔗 Share this article

Can you understand our political system works? Maybe something like this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. The law are enforced by the courts. End of story. However, that’s how it operated in the past. No longer.

The Rise of Offshore Courts

In the modern era, foreign corporations, or the oligarchs behind them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels staffed by commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these tribunals grant no right of appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, including companies operating from this country. The door is open solely for businesses operating from foreign soil.

When a secret court rules that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

This compensation constitute not real financial harm but funds the arbitrators determine the company would perhaps have made. The administration could be forced to abandon its policy. It is hesitant to introducing similar legislation of a similar nature, worried about facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being filed, as companies take cues from each other, and private equity finance suits in return for a share of the settlements. The outcome? Sovereignty and democracy are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the rulings enacted by legislatures is that this clause has been written – without democratic mandate, and frequently under conditions of profound opacity – within trade treaties.

A Real-World Example: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the senior court. The justice 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 Conservative government, which had endorsed the extraordinary assertion that the mine would have had no impact on our carbon budgets. The Labour government then withdrew the permission the Tories had granted. Today, this success is under threat by an secret arbitration panel answering to no one but the companies filing the suit.

In August, a company whose ultimate owners reside in the tax haven initiated proceedings against the UK government. Last week a tribunal in the US capital was established to consider the case.

The claimant is suing the UK for the money it could have earned if the mine had been permitted to proceed. Citizens have no clear indication 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 self-proclaimed patriot the MP. The administration passes a law, the national judiciary supports it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Case

On the same day that the court on the coalmine case was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case so far, but it seems likely that he may employ the ISDS mechanism to contest the penalties the UK levied against him after the invasion of Ukraine. He has previously filed a claim against a small nation for this reason, claiming sixteen billion dollars: half that government’s yearly budget. Included in the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists believe that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine critically depends on.

Misleading Claims and Mounting Threats

The public was told that these events wouldn’t happen. Years ago, a senior politician, promoting the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade agreement upon trade deal and there has never been a issue in the past.” A consultant on this matter labelled activists of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression appeared to be that solely developing countries needed to fear such legal actions. Warnings that “as corporations grasp the authority bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were met with widespread derision.

That threat has come to pass. Recently, energy and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, opposing – similar to the Whitehaven project – government attempts to stop global warming. Companies have so far won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP