🔗 Share this article

What is your understand our democratic process functions? Maybe something like this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills become law. Statutes is maintained by the courts. That's it. Yet, that used to be how it operated in the past. Not anymore.

The Rise of Offshore Courts

In the modern era, international firms, along with the wealthy individuals that control them, can sue elected administrations for the policies they pass, at private courts staffed by commercial attorneys. These proceedings take place in secret. In contrast to domestic courts, these panels grant no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, nor can our government, including enterprises operating from this country. The door is open solely for businesses operating from foreign soil.

If a tribunal determines that a legislative action could harm the corporation’s projected profits, it can award financial penalties of hundreds of millions, potentially billions.

These sums constitute not real financial harm but compensation the arbitrators determine the company could potentially have made. The administration might be compelled to rescind the measure. It becomes hesitant to introducing similar legislation of a similar nature, worried about being sued.

A Process Spiralling Out of Control

Record numbers of disputes are being brought, as companies learn from each other, and hedge funds bankroll lawsuits in return for a share of the awards. The outcome? National sovereignty and democracy are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the rulings made by parliaments is that this stipulation has been written – without public consent, and typically amid a climate of total confidentiality – within bilateral investment treaties.

A Real-World Example: The UK Coal Mine

Twelve months ago, activists achieved a major legal triumph at the High Court. The justice found that schemes to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine could have no impact on national carbon targets. The incoming administration later cancelled the consent the Tories had granted. Now, this legal outcome could be compromised by an foreign court accountable to only the companies petitioning it.

Last August, a company whose final controllers reside in the tax haven lodged a claim against the UK government. Recently a dispute settlement body in the United States was convened to adjudicate on it.

This firm is suing the UK for the revenue it would have generated if the mine had received permission to go ahead. Citizens have no clear indication how much this sum represents. Which individual is acting on its behalf challenging the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court validates it, then a overseas corporation contests it through an unaccountable private court, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know little of the case at present, but it appears probable that he may employ the tribunal to contest the sanctions the UK levied against him after the Russian aggression. He has initiated proceedings against another European state on these grounds, claiming sixteen billion dollars: equivalent to half of government’s annual revenue. Part of the lawyers on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s procrastination in leveraging immobilised state funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over sovereign states might be preventing the funds Ukraine urgently requires.

Misleading Claims and Growing Risks

We were assured that such things wouldn’t happen. Previously, a senior politician, advocating for the largest and riskiest of all such treaties, declared: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An adviser on this topic accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about these lawsuits. Warnings that “when companies start to realise the power they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat is now a reality. This year, fossil fuel and extraction companies have initiated a record number of claims against nations both wealthy and developing, contesting – similar to the UK mine – official measures to halt environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP