How do you perceive our political system operates? Perhaps similar to this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Statutes is maintained by the courts. End of story. However, that’s how it used to work. Those days are over.
The Emergence of Secret Tribunals
Nowadays, international firms, or the oligarchs who own them, can sue nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. These proceedings take place away from public scrutiny. Unlike our courts, these panels provide no opportunity to appeal or judicial review. The general public are unable to file a case to them, just as our government, including businesses headquartered in this country. The door is open solely for businesses based overseas.
When a secret court rules that a government measure may compromise the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, even billions.
These sums are based not on real financial harm but compensation the panel members determine the company could potentially have made. The state may have to abandon its policy. It becomes hesitant to enacting future policies in that area, for fear of being sued.
A System Growing Exponentially
Historically high figures of disputes are being brought, as firms observe each other, and hedge funds bankroll lawsuits for a share of a portion of the settlements. The consequence? National sovereignty and popular rule are turning into unaffordable.
The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the choices taken by legislatures is that this stipulation has been written – without public consent, and often in conditions of total confidentiality – into international trade agreements.
A Real-World Instance: The Whitehaven Coalmine
Twelve months ago, activists won a great victory at the high court. The presiding officer ruled that proposals to open the first deep coalmine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had endorsed the bizarre claim that the mine could have no consequence on our carbon budgets. The Labour government later cancelled the permission the former government had granted. Today, this success is under threat by an offshore tribunal reporting to no one but the entities bringing the case.
In August, a company whose ultimate owners are based in the Cayman Islands lodged a claim against the UK government. Last week a tribunal in the United States was convened to consider the case.
The company is litigating against the UK for the revenue it could have earned if the mine had received permission to commence operations. Citizens have little idea how much this could amount to. Which individual is acting on its behalf in opposition to the UK administration? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the high court validates it, then a international entity disputes it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.
An Oligarch's Challenge
Concurrently that the court on the coal mine dispute was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he’ll use the ISDS mechanism to challenge the sanctions the UK enacted against him after the invasion of Ukraine. He has filed a claim against a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of government’s yearly income. Among the lawyers representing him there? the wife of a former prime minister, spouse of the previous PM.
Legal experts argue that the EU’s hesitation in utilising seized oligarchs' funds as guarantee 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, undemocratic power over sovereign states might be preventing the finance Ukraine critically depends on.
Misleading Claims and Escalating Threats
We were assured that these scenarios wouldn’t happen. In 2014, a former prime minister, advocating for the largest and riskiest of all investment pacts, stated: “The UK has signed investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this issue accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states needed to fear ISDS claims. Warnings that “when companies grasp the authority they now possess, they will redirect their efforts from the poorer states to the strong ones” were met with widespread derision.
That prediction has now materialised. In the current period, oil and gas and extraction companies have filed a historic level of suits against nations across the economic spectrum, opposing – as in the case of the UK mine – official measures to stop climate breakdown. Corporations have thus far won vast sums through ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP
