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How do you perceive our system of government operates? Maybe similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills become law. Legislation are enforced by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs behind them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted in secret. Differing from national judiciaries, these tribunals grant no right of appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even businesses operating from this country. They are open solely for businesses registered abroad.

If a tribunal determines that a government measure could harm the corporation’s projected profits, it has the power to grant financial penalties of vast sums, running into billions.

This compensation constitute not real financial harm but compensation the tribunal officials determine the company would perhaps have made. The state could be forced to abandon its policy. It becomes discouraged from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Process Running Rampant

Record numbers of disputes are being brought, as firms learn from each other, and investment funds fund legal actions for a share of a cut of the takings. The result? National sovereignty and democratic governance are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede a country's own laws and the choices taken by parliaments is that this clause has been incorporated – without public consent, and frequently under conditions of extreme secrecy – within bilateral investment treaties.

A Concrete Instance: The Whitehaven Coal Mine

A year ago, a conservation group achieved a major legal triumph at the High Court. The presiding officer found that proposals to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no impact on our carbon budgets. The incoming administration later cancelled the licence the previous administration had issued. Now, this success could be compromised by an offshore tribunal accountable to only the entities bringing the case.

In August, a company whose final controllers are located in the offshore financial centre initiated proceedings against the UK government. Recently a tribunal in Washington DC was convened to consider the case.

The company is seeking compensation from the UK for the money it could have earned if the mine had been allowed to commence operations. Citizens have little idea how much this could amount to. Which individual is acting on its behalf in opposition to the state? An elected representative, and previous senior legal advisor in the previous government, that great patriot the MP. The government passes a law, the high court upholds it, then a overseas corporation contests it through an unaccountable private court, and a sitting MP represents its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case at present, but it seems likely that he’ll use the tribunal to fight the penalties the UK enacted against him following the invasion of Ukraine. He has already initiated proceedings against another European state with similar intent, seeking $16bn: equivalent to half of government’s yearly income. Among the counsel on his side? a prominent lawyer, married to the former British prime minister.

Trade specialists believe 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 trade agreement. This unprecedented, unaccountable authority over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Growing Threats

We were assured that these events wouldn’t happen. In 2014, a former prime minister, advocating for the largest and riskiest of all these agreements, stated: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” A consultant on this issue labelled campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Predictions that “when companies grasp the authority they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were met with widespread derision.

That threat is now a reality. In the current period, oil and gas and extraction companies have initiated a record number of claims against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – state efforts to prevent climate breakdown. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP