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What is your reckon our system of government operates? Maybe similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. Legislation is maintained by the courts. Simple as that. Yet, that’s how it operated in the past. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, international firms, and the wealthy individuals who own them, are able to litigate against governments for the policies they pass, at offshore tribunals made up of corporate lawyers. These proceedings take place in secret. In contrast to domestic courts, these tribunals allow no avenue for appeal or legal review. You or I cannot take a case to them, just as our government, including companies headquartered in this country. The door is open solely for entities registered abroad.

When a secret court rules that a law or policy might diminish the corporation’s anticipated profits, it has the power to grant damages of vast sums, even billions.

These awards are based not on tangible damages but funds the tribunal officials decide the company would perhaps have made. The administration might be compelled to drop the legislation. It is deterred from enacting future policies in that area, due to the risk of facing litigation.

A Process Running Rampant

Unprecedented levels of legal actions are being initiated, as companies take cues from each other, and private equity bankroll lawsuits in return for a portion of the awards. The consequence? National sovereignty and democracy are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the choices enacted by legislatures is that this clause has been written – absent public approval, and often in conditions of profound opacity – into bilateral investment treaties.

A Specific Example: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the high court. The judge ruled that schemes to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine would have had no consequence on national carbon targets. The Labour government then withdrew the permission the Tories had issued. Now, this victory faces being overturned by an secret arbitration panel reporting to exclusively the corporations filing the suit.

Last August, a corporate entity whose ultimate owners are located in the tax haven lodged a claim against the UK government. Recently a tribunal in the US capital was established to hear it.

The claimant is suing the UK for the profits it would have generated if the mine had received permission to go ahead. The public has no clear indication how much this sum represents. Which individual is representing it in opposition to the state? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the domestic court supports it, then a international entity challenges it through an undemocratic private court, and a sitting MP acts on its behalf.

A Sanctions Challenge

Concurrently that the court on the coalmine case was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case at present, but it appears probable that he may employ the tribunal to fight the restrictions the UK enacted against him after the war in Ukraine. He has already filed a claim against another European state with similar intent, claiming sixteen billion dollars: equivalent to half of state's annual revenue. Included in the lawyers on his side? a prominent lawyer, wife of the former British prime minister.

International law scholars believe that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its financial support package arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over democratic administrations could be blocking the finance Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that these events could not occur. Previously, a senior politician, promoting the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade agreement after trade deal and we have never seen a problem in the past.” An adviser on this issue accused critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states needed to fear ISDS claims. Warnings that “as corporations start to realise the influence they now possess, they will shift their focus from the poorer states to the strong ones” were greeted by general mockery.

That warning is now a reality. In the current period, fossil fuel and mining firms have lodged a unprecedented number of cases against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – government attempts to prevent global warming. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP