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How do you reckon our system of government functions? Maybe something like this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. The law is upheld by the courts. Simple as that. However, that used to be how it used to work. Those days are over.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, or the wealthy individuals who own them, can sue nation states for the policies they pass, at secret arbitration panels staffed by business advocates. Such disputes take place away from public scrutiny. Differing from national judiciaries, these tribunals grant no avenue for appeal or legal review. The general public cannot take a case to them, nor can our government, or even businesses based in this country. Access is granted only to corporations registered abroad.

If a tribunal rules that a government measure might diminish the corporation’s expected profits, it may order financial penalties of vast sums, potentially billions.

These awards represent not actual losses but money the arbitrators conclude the company could potentially have made. The government may have to rescind the measure. It will be hesitant to passing future laws of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of cases are being filed, as corporations observe each other, and hedge funds bankroll lawsuits in exchange for a share of the awards. The consequence? Sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the decisions made by legislatures is that this stipulation has been incorporated – absent public approval, and typically amid an atmosphere of extreme secrecy – within bilateral investment treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The justice determined that schemes to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have zero effect on our carbon budgets. The incoming administration then withdrew the licence the former government had granted. Today, this victory faces being overturned by an secret arbitration panel reporting to only the companies petitioning it.

Last August, a firm whose ultimate owners are located in the tax haven initiated proceedings challenging the UK government. Last week a arbitration panel in the US capital was set up to adjudicate on it.

The company is suing the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. Which individual is representing it against the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the high court supports it, then a foreign company disputes it through an unaccountable private court, and a sitting MP represents its behalf.

The Russian Case

Simultaneously that the court on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are little of the case so far, but it seems likely that he may employ the arbitration process to fight the penalties the UK imposed on him after the war in Ukraine. He has already initiated proceedings against Luxembourg with similar intent, claiming a colossal sum: an amount representing half nation's annual revenue. Included in the legal team representing him there? Cherie Blair, wife of the ex-UK leader.

Legal experts contend that the EU’s hesitation in using frozen oligarchs' funds as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Mounting Risks

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, promoting the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” An expert on this issue labelled campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations needed to fear such legal actions. Warnings that “as corporations begin to understand the influence they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That prediction has come to pass. Recently, fossil fuel and mining firms have filed a unprecedented number of claims against nations across the economic spectrum, opposing – similar to the UK mine – government attempts to stop global warming. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP