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How do you reckon our system of government works? Maybe similar to this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills become law. Legislation are enforced by the courts. End of story. Well, that’s how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, along with the billionaires behind them, can sue nation states for the policies they pass, at secret arbitration panels made up of commercial attorneys. The cases take place in secret. In contrast to domestic courts, these tribunals grant no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even enterprises operating from this country. Access is granted exclusively to businesses registered abroad.

When a secret court finds that a government measure might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

These awards constitute not tangible damages but funds the panel members determine the company might otherwise have made. The administration may have to abandon its policy. It is deterred from introducing similar legislation of a similar nature, for fear of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as corporations learn from each other, and investment funds bankroll lawsuits for a share of a share of the awards. The consequence? National sovereignty and democracy are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the decisions enacted by legislatures is that this provision has been incorporated – absent public approval, and frequently under a climate of profound opacity – into international trade agreements.

A Specific Case: The UK Coalmine

Last year, a conservation group achieved a major legal triumph at the senior court. The justice found that plans to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had accepted the questionable argument that the mine would have had no consequence on climate commitments. The incoming administration then withdrew the permission the Tories had issued. Now, this success faces being overturned by an secret arbitration panel answering to no one but the entities filing the suit.

During August, a company whose final controllers are located in the offshore financial centre initiated proceedings versus the UK government. Last week a dispute settlement body in the United States was convened to consider the case.

The claimant is suing the UK for the money it would have generated if the mine had been permitted to go ahead. The public has no idea how much this sum represents. What legal team is serving as its counsel against the British government? A sitting MP, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The administration enacts a policy, the high court validates it, then a foreign company challenges it through an secretive arbitration panel, and a elected official acts on its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK imposed on him subsequent to the war in Ukraine. He has filed a claim against another European state for this reason, demanding $16bn: equivalent to half of government’s annual revenue. Included in the legal team on his side? the wife of a former prime minister, married to the previous PM.

International law scholars argue that the EU’s procrastination in utilising seized state funds as security for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the funds Ukraine critically depends on.

Empty Promises and Mounting Risks

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, championing the most significant and hazardous of all investment pacts, stated: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An expert on this topic labelled campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms start to realise the influence they now possess, they will shift their focus from the weak nations to the wealthy nations” were met with general mockery.

That warning has come to pass. In the current period, oil and gas and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – official measures to stop climate breakdown. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That is equivalent to the combined GDP