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Can you perceive our system of government works? Perhaps something like this. We elect MPs. They vote on bills. When a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. Yet, that used to be how it used to work. No longer.

The Rise of Offshore Arbitration Panels

Today, foreign corporations, or the oligarchs who own them, can sue nation states for the laws they pass, at secret arbitration panels staffed by business advocates. Such disputes are held behind closed doors. Unlike our courts, these bodies provide no right of appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, including businesses based in this country. The door is open exclusively to corporations based overseas.

If a tribunal finds that a legislative action might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

These sums are based not on actual losses but funds the arbitrators determine the company would perhaps have made. The state may have to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being initiated, as firms observe each other, and private equity bankroll lawsuits for a share of a portion of the awards. The outcome? Democratic sovereignty and democracy are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices made by legislatures is that this clause has been incorporated – without democratic mandate, and typically amid an atmosphere of extreme secrecy – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

Last year, activists achieved a major legal triumph at the High Court. The judge found that proposals to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine would have no consequence on national carbon targets. The new government then withdrew the permission the former government had approved. Now, this success faces being overturned by an offshore tribunal answering to no one but the entities bringing the case.

Last August, a corporate entity whose beneficial owners are located in the Cayman Islands lodged a claim challenging the UK government. Recently a dispute settlement body in the US capital was convened to hear it.

The claimant is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. Citizens have no clear indication how much this could amount to. Who is acting on its behalf against the UK administration? A member of parliament, and former attorney-general in the Conservative government, that great patriot the MP. The government passes a law, the high court validates it, then a international entity contests it through an undemocratic arbitration panel, and a elected official works for its behalf.

A Sanctions Case

Concurrently that the panel on the coalmine case was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. We know little of the case so far, but it appears probable that he will utilise the tribunal to contest the penalties the UK enacted against him following the war in Ukraine. He has already filed a claim against another European state for this reason, claiming sixteen billion dollars: half that nation's annual revenue. Among the legal team representing him there? Cherie Blair, spouse of the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized state funds as security for its aid for Ukraine is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Escalating Risks

We were assured that these events wouldn’t happen. Previously, a former prime minister, promoting the biggest and most dangerous of all these agreements, stated: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this issue described critics of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations needed to fear such legal actions. Warnings that “as corporations begin to understand the power bestowed upon them, they will shift their focus from the weak nations to the developed economies” were met with widespread derision.

That warning is now a reality. In the current period, energy and resource corporations have lodged a record number of claims against nations both wealthy and developing, challenging – like the example of the Whitehaven project – government attempts to halt global warming. Firms have thus far won vast sums via ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP