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How do you reckon our system of government works? Maybe along the lines of this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. Legislation is upheld by the courts. End of story. Well, that was how it operated in the past. No longer.

The Advent of Offshore Arbitration Panels

In the modern era, overseas companies, or the oligarchs that control them, have the power to sue governments for the policies they pass, at private courts staffed by business advocates. These proceedings take place away from public scrutiny. In contrast to domestic courts, these panels provide no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted solely for entities based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s expected profits, it can award damages of vast sums, even billions.

These awards are based not on tangible damages but compensation the arbitrators conclude the company might otherwise have made. The state may have to drop the legislation. It will be discouraged from passing future laws along the same lines, for fear of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being brought, as firms take cues from each other, and private equity bankroll lawsuits for a share of a cut of the awards. The result? National sovereignty and democracy are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the rulings taken by legislatures is that this stipulation has been incorporated – without public consent, and typically amid a climate of profound opacity – inside trade treaties.

A Real-World Case: The Whitehaven Coalmine

Last year, a conservation group achieved a major legal triumph at the high court. The justice ruled that plans to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The incoming administration then withdrew the consent the Tories had approved. Now, this legal outcome could be compromised by an offshore tribunal answering to no one but the companies bringing the case.

Last August, a company whose beneficial owners are located in the Cayman Islands filed a lawsuit against the UK government. Recently a dispute settlement body in Washington DC was set up to adjudicate on it.

The claimant is suing the UK for the revenue it would have generated if the mine had been permitted to proceed. The public has little idea how much this could amount to. What legal team is serving as its counsel challenging the UK administration? An elected representative, and former attorney-general in the Conservative government, the noted patriot the MP. The administration enacts a policy, the high court upholds it, then a foreign company contests it through an secretive private court, and a member of our parliament represents its behalf.

A Sanctions Lawsuit

On the same day that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. Details are scarce of the case to date, but it is highly possible that he’ll use the tribunal to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has initiated proceedings against another European state for this reason, demanding a colossal sum: an amount representing half nation's yearly income. Among the lawyers on his side? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts argue that the EU’s hesitation in using frozen state funds as collateral 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 unprecedented, undemocratic power over elected governments could be blocking the funds Ukraine urgently requires.

False Assurances and Mounting Threats

The public was told that these events could not occur. In 2014, a government leader, advocating for the most significant and hazardous of all these agreements, stated: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” An adviser on this matter labelled critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “once firms start to realise the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That warning has now materialised. In the current period, oil and gas and extraction companies have lodged a unprecedented number of claims against nations rich and poor, contesting – like the example of the UK mine – official measures to halt global warming. Companies have so far won $114bn via ISDS, of which energy giants have secured $84bn. That represents the combined GDP