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What is your perceive our system of government operates? Maybe something like this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills become law. Legislation are enforced by the courts. That's it. However, that used to be how it operated in the past. Those days are over.

The Advent of Offshore Arbitration Panels

In the modern era, international firms, or the oligarchs behind them, can sue elected administrations for the laws they pass, at secret arbitration panels made up of corporate lawyers. The cases take place in secret. Unlike our courts, these panels allow no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, or even businesses headquartered in this country. The door is open solely for entities operating from foreign soil.

When a secret court finds that a law or policy could harm the corporation’s anticipated profits, it may order compensation of vast sums, running into billions.

These sums are based not on tangible damages but compensation the tribunal officials determine the company could potentially have made. The state might be compelled to drop the legislation. It will be discouraged from passing future laws of a similar nature, due to the risk of being sued.

A System Spiralling Out of Control

Record numbers of legal actions are being filed, as companies observe each other, and private equity bankroll lawsuits in return for a cut of the settlements. The result? Sovereignty and democratic governance are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the decisions taken by parliaments is that this stipulation has been incorporated – without democratic mandate, and typically amid a climate of profound opacity – inside bilateral investment treaties.

A Real-World Case: The UK Coalmine

A year ago, activists secured a significant win at the high court. The justice determined that proposals to excavate the first major coal mine in the UK for a generation, in Cumbria, were illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine would have zero effect on national carbon targets. The incoming administration then withdrew the consent the former government had approved. Now, this victory could be compromised by an foreign court answering to no one but the entities bringing the case.

During August, a corporate entity whose final controllers are located in the offshore financial centre lodged a claim against the UK government. Last week a dispute settlement body in the US capital was convened to adjudicate on it.

The company is seeking compensation from the UK for the money it might have made if the mine had been allowed to go ahead. We have no clear indication how much this might be. Which individual is acting on its behalf challenging the British government? An elected representative, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The administration passes a law, the high court validates it, then a international entity disputes it through an unaccountable arbitration panel, and a elected official represents its behalf.

A Sanctions Case

Concurrently that the court on the mining lawsuit was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case so far, but it appears probable that he may employ the arbitration process to fight the sanctions the UK levied against him following the Russian aggression. He has already started suing a small nation with similar intent, claiming $16bn: equivalent to half of government’s yearly budget. Included in the lawyers representing him there? a prominent lawyer, spouse of the former British prime minister.

Legal experts contend that the EU’s procrastination in using frozen oligarchs' funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Mounting Costs

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, advocating for the largest and riskiest of all these agreements, declared: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” An expert on this issue accused critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “as corporations grasp the power they now possess, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That threat is now a reality. This year, fossil fuel and resource corporations have lodged a unprecedented number of suits against nations across the economic spectrum, opposing – similar to the Whitehaven project – government attempts to stop climate breakdown. Firms have so far won vast sums via ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP