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How do you perceive our system of government works? Maybe similar to this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills become law. Legislation is upheld by the courts. End of story. However, that was how it once functioned. No longer.

The Advent of Offshore Arbitration Panels

Today, foreign corporations, along with the billionaires behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are held in secret. Unlike our courts, these tribunals provide no right of appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even businesses operating from this country. They are open exclusively to entities registered abroad.

Should an arbitration panel finds that a legislative action might diminish the corporation’s projected profits, it has the power to grant damages of vast sums, even billions.

These awards are based not on real financial harm but money the panel members determine the company might otherwise have made. The state may have to abandon its policy. It will be hesitant to introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of cases are being brought, as companies take cues from each other, and hedge funds finance suits for a share of a portion of the takings. The result? National sovereignty and popular rule are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the rulings made by parliaments is that this stipulation has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – within bilateral investment treaties.

A Specific Case: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the senior court. The justice determined that plans to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have no consequence on national carbon targets. The incoming administration subsequently revoked the consent the Tories had granted. Currently, this legal outcome could be compromised by an secret arbitration panel reporting to no one but the corporations bringing the case.

During August, a firm whose beneficial owners are located in the tax haven initiated proceedings versus the UK government. Last week a dispute settlement body in the United States was established to adjudicate on it.

The company is litigating against the UK for the revenue it would have generated if the mine had been permitted to commence operations. The public has no idea how much this could amount to. Who is serving as its counsel against the British government? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a international entity contests it through an secretive arbitration panel, and a elected official works for its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are little of the case to date, but it is highly possible that he will utilise the ISDS mechanism to fight the penalties the UK imposed on him following the invasion of Ukraine. He has previously started suing a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of state's yearly income. Part of the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars contend that the EU’s delay in using frozen oligarchs' funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, undemocratic power over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Growing Costs

Politicians promised that these events were not possible. Years ago, a former prime minister, promoting the biggest and most dangerous of all these agreements, stated: “We’ve signed trade deal upon trade deal and there has not been a case in the past.” An adviser on this matter described activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “as corporations start to realise the authority they now possess, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That threat is now a reality. In the current period, energy and mining firms have lodged a record number of suits against nations both wealthy and developing, challenging – similar to the UK mine – official measures to halt climate breakdown. Corporations have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP