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What is your perceive our system of government functions? Perhaps something like this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills pass into law. The law is upheld by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, or the oligarchs who own them, can sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. The cases are conducted away from public scrutiny. Differing from national judiciaries, these panels provide no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, including businesses operating from this country. Access is granted only to businesses based overseas.

When a secret court rules that a government measure could harm the corporation’s projected profits, it can award financial penalties of vast sums, even billions.

These awards are based not on tangible damages but compensation the panel members conclude the company could potentially have made. The government might be compelled to abandon its policy. It is hesitant to introducing similar legislation of a similar nature, worried about facing litigation.

A System Running Rampant

Record numbers of legal actions are being brought, as corporations observe each other, and hedge funds fund legal actions for a share of a share of the awards. The outcome? Democratic sovereignty and democratic governance are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the decisions enacted by legislatures is that this clause has been incorporated – without public consent, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The judge ruled that schemes to excavate the first new deep coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have no impact on national carbon targets. The new government subsequently revoked the permission the Tories had issued. Currently, this victory could be compromised by an foreign court answering to no one but the companies petitioning it.

In August, a company whose ultimate owners reside in the tax haven lodged a claim versus the UK government. Recently a tribunal in the US capital was convened to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. The public has no idea how much this could amount to. Which individual is serving as its counsel challenging the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a international entity disputes it through an unaccountable offshore tribunal, and a elected official represents its behalf.

The Russian Lawsuit

Simultaneously that the court on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case so far, but it is highly possible that he will utilise the arbitration process to fight the penalties the UK enacted against him after the invasion of Ukraine. He has previously initiated proceedings against a small nation with similar intent, seeking sixteen billion dollars: an amount representing half nation's yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists believe that the EU’s delay in utilising seized state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that these events could not occur. In 2014, a government leader, advocating for the biggest and most dangerous of all such treaties, told us: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter accused campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries should be concerned by such legal actions. Warnings that “as corporations start to realise the power bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by general mockery.

That threat is now a reality. Recently, fossil fuel and resource corporations have lodged a unprecedented number of suits against nations both wealthy and developing, opposing – like the example of the UK mine – state efforts to stop climate breakdown. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP