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How do you perceive our system of government functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. End of story. Yet, that was how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Today, overseas companies, along with the billionaires that control them, have the power to sue governments for the policies they pass, at offshore tribunals composed of business advocates. Such disputes are held behind closed doors. In contrast to domestic courts, these bodies allow no right of appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, including enterprises operating from this country. They are open exclusively to entities operating from foreign soil.

If a tribunal determines that a legislative action may compromise the corporation’s anticipated profits, it can award financial penalties of vast sums, running into billions.

This compensation are based not on tangible damages but funds the tribunal officials decide the company might otherwise have made. The state might be compelled to abandon its policy. It will be discouraged from introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of legal actions are being brought, as corporations take cues from each other, and hedge funds bankroll lawsuits in exchange for a share of the awards. The consequence? National sovereignty and democracy are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices taken by elected bodies is that this stipulation has been incorporated – absent public approval, and typically amid conditions of total confidentiality – within bilateral investment treaties.

A Specific Example: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The judge determined that schemes to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had accepted the questionable argument that the mine could have no impact on our carbon budgets. The Labour government subsequently revoked the consent the former government had issued. Today, this success faces being overturned by an secret arbitration panel reporting to exclusively the entities bringing the case.

Last August, a company whose final controllers reside in the Cayman Islands initiated proceedings against the UK government. Recently a tribunal in the United States was convened to hear it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been permitted to proceed. We have little idea how much this could amount to. Which individual is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The government makes a decision, the domestic court supports it, then a overseas corporation contests it through an secretive offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case at present, but it appears probable that he will utilise the arbitration process to contest the sanctions the UK imposed on him following the invasion of Ukraine. He has already filed a claim against Luxembourg with similar intent, seeking sixteen billion dollars: half that state's yearly budget. Part of the legal team representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists contend that the EU’s delay in using frozen state funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the money Ukraine desperately needs.

Empty Promises and Mounting Risks

We were assured that these scenarios could not occur. Previously, a government leader, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement upon trade deal and there has never been a problem in the past.” An expert on this topic labelled critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about ISDS claims. Warnings that “as corporations grasp the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by scepticism.

That threat has now materialised. This year, fossil fuel and mining firms have lodged a historic level of cases against nations both wealthy and developing, contesting – similar to the UK mine – official measures to prevent environmental catastrophe. Firms have to date won $114bn via ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP