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Can you understand our system of government works? Perhaps similar to this. We elect MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. End of story. Well, that was how it once functioned. Those days are over.

The Emergence of Secret Arbitration Panels

Today, foreign corporations, or the oligarchs that control them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals made up of corporate lawyers. These proceedings take place behind closed doors. Unlike our courts, these panels grant no right of appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies based in this country. Access is granted only to businesses registered abroad.

Should an arbitration panel finds that a law or policy might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, even billions.

These sums are based not on tangible damages but funds the arbitrators determine the company might otherwise have made. The administration could be forced to rescind the measure. It becomes hesitant to enacting future policies in that area, worried about facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being brought, as companies take cues from each other, and hedge funds fund legal actions for a share of a cut of the takings. The result? National sovereignty and democratic governance are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the decisions taken by elected bodies is that this provision has been incorporated – without public consent, and typically amid conditions of total confidentiality – inside bilateral investment treaties.

A Real-World Case: The UK Coalmine

Twelve months ago, activists secured a significant win at the high court. The justice determined that schemes to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine would have no impact on our carbon budgets. The new government then withdrew the consent the Tories had granted. Currently, this victory faces being overturned by an offshore tribunal reporting to exclusively the companies bringing the case.

Last August, a firm whose beneficial owners are based in the Cayman Islands lodged a claim challenging the UK government. Recently a tribunal in the US capital was convened to adjudicate on it.

The claimant is litigating against the UK for the profits it might have made if the mine had been allowed to proceed. We have no clear indication how much this could amount to. Which individual is acting on its behalf challenging the British government? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The government passes a law, the national judiciary supports it, then a international entity contests it through an secretive private court, and a sitting MP acts on its behalf.

The Russian Challenge

Simultaneously that the tribunal on the coal mine dispute was established, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case to date, but it appears probable that he’ll use the arbitration process to contest the restrictions the UK levied against him following the war in Ukraine. He has previously started suing Luxembourg for this reason, seeking a colossal sum: half that state's yearly income. Among the lawyers on his side? a prominent lawyer, wife of the former British prime minister.

International law scholars argue that the EU’s procrastination in using frozen state funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over elected governments could be blocking the money Ukraine urgently requires.

False Assurances and Mounting Costs

We were assured that these events wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade agreement upon trade deal and there has not been a issue in the past.” A consultant on this matter accused critics of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear ISDS claims. Warnings that “when companies begin to understand the authority bestowed upon them, they will turn their attention from the poorer states to the developed economies” were met with widespread derision.

That prediction is now a reality. This year, fossil fuel and extraction companies have filed a unprecedented number of suits against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – government attempts to prevent climate breakdown. Companies have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP