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What is your understand our system of government operates? Maybe something like this. We elect MPs. They legislate on bills. When a majority is obtained, the bills become law. Legislation is maintained by the courts. End of story. Well, that’s how it once functioned. No longer.

The Emergence of Offshore Arbitration Panels

Today, foreign corporations, or the wealthy individuals behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted in secret. Differing from national judiciaries, these tribunals grant no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. Access is granted only to corporations registered abroad.

If a tribunal rules that a legislative action might diminish the corporation’s anticipated profits, it can award damages of vast sums, running into billions.

These sums constitute not tangible damages but funds the panel members conclude the company might otherwise have made. The administration could be forced to drop the legislation. It is deterred from introducing similar legislation of a similar nature, due to the risk of being sued.

A Mechanism Running Rampant

Unprecedented levels of cases are being initiated, as corporations learn from each other, and hedge funds finance suits for a share of a cut of the takings. The outcome? National sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the rulings enacted by elected bodies is that this clause has been incorporated – without public consent, and typically amid a climate of profound opacity – into trade treaties.

A Specific Example: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the senior court. The judge found that schemes to open the first new deep coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the licence the Tories had approved. Today, this success could be compromised by an offshore tribunal answering to only the companies filing the suit.

Last August, a firm whose final controllers are based in the tax haven filed a lawsuit against the UK government. Last week a tribunal in the United States was convened to adjudicate on it.

The claimant is suing the UK for the profits it would have generated if the mine had been allowed to commence operations. Citizens have no clear indication how much this sum represents. Who is serving as its counsel in opposition to the state? A sitting MP, and previous senior legal advisor in the previous government, that great patriot the MP. The state enacts a policy, the national judiciary supports it, then a foreign company disputes it through an secretive private court, and a sitting MP acts on its behalf.

The Russian Case

Simultaneously that the tribunal on the mining lawsuit was convened, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he will utilise the arbitration process to contest the penalties the UK enacted against him after the war in Ukraine. He has filed a claim against a small nation with similar intent, demanding $16bn: an amount representing half state's annual revenue. Part of the legal team acting for him in that case? a prominent lawyer, wife of the former British prime minister.

International law scholars contend that the EU’s delay in leveraging immobilised state funds as collateral for its loan to Ukraine stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over elected governments might be preventing the finance Ukraine urgently requires.

Empty Promises and Mounting Threats

We were assured that such things wouldn’t happen. In 2014, a senior politician, championing the most significant and hazardous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” A consultant on this topic accused activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies begin to understand the power they now possess, they will redirect their efforts from the poorer states to the developed economies” were dismissed with scepticism.

That threat has now materialised. In the current period, oil and gas and extraction companies have initiated a historic level of suits against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – government attempts to stop global warming. Firms have so far won $114bn through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP