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Can you understand our system of government functions? Maybe something like this. We elect MPs. They vote on bills. If a majority is obtained, the bills become law. The law is maintained by the courts. End of story. However, that’s how it once functioned. No longer.

The Emergence of Offshore Arbitration Panels

Nowadays, overseas companies, along with the oligarchs who own them, can sue elected administrations for the policies they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are conducted in secret. Differing from national judiciaries, these panels provide no avenue for appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, including companies operating from this country. Access is granted solely for businesses based overseas.

Should an arbitration panel finds that a legislative action may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These awards are based not on tangible damages but money the arbitrators decide the company might otherwise have made. The government may have to rescind the measure. It will be deterred from passing future laws of a similar nature, for fear of facing litigation.

A Mechanism Running Rampant

Historically high figures of disputes are being initiated, as firms take cues from each other, and investment funds finance suits in return for a portion of the settlements. The outcome? Sovereignty and democratic governance are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the decisions made by legislatures is that this clause has been incorporated – absent public approval, and frequently under a climate of total confidentiality – within bilateral investment treaties.

A Concrete Instance: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The justice ruled that schemes to excavate the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine would have had no impact on climate commitments. The incoming administration subsequently revoked the consent the Tories had granted. Now, this legal outcome is under threat by an offshore tribunal answering to exclusively the entities bringing the case.

In August, a corporate entity whose final controllers reside in the tax haven filed a lawsuit against the UK government. Recently a dispute settlement body in the US capital was set up to adjudicate on it.

This firm is litigating against the UK for the profits it might have made if the mine had received permission to commence operations. Citizens have no clear indication how much this sum represents. What legal team is serving as its counsel against the British government? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the national judiciary validates it, then a foreign company challenges it through an unaccountable arbitration panel, and a elected official works for its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case so far, but it seems likely that he may employ the tribunal to fight the sanctions the UK levied against him subsequent to the Russian aggression. He has already started suing a small nation on these grounds, demanding a colossal sum: equivalent to half of government’s yearly income. Among the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

International law scholars contend that the EU’s hesitation in utilising seized Russian assets as security for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations could be blocking the funds Ukraine desperately needs.

Misleading Claims and Escalating Costs

The public was told that these events could not occur. In 2014, a senior politician, championing the biggest and most dangerous of all such treaties, declared: “The UK has signed trade agreement after trade deal and we have never seen a issue in the past.” An adviser on this issue labelled critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Warnings that “when companies start to realise the authority they now possess, they will shift their focus from the weak nations to the wealthy nations” were met with widespread derision.

That warning has now materialised. Recently, energy and mining firms have filed a unprecedented number of claims against nations rich and poor, challenging – as in the case of the UK mine – official measures to halt environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP