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Can you perceive our system of government operates? Maybe something like this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills become law. The law are enforced by the courts. End of story. Well, that used to be how it used to work. Those days are over.

The Emergence of Offshore Arbitration Panels

In the modern era, international firms, or the wealthy individuals that control them, can sue elected administrations for the regulations they pass, at offshore tribunals composed of business advocates. The cases are conducted in secret. Differing from national judiciaries, these panels provide no right of appeal or judicial review. You or I cannot take a case to them, and neither can our government, or even companies headquartered in this country. They are open only to businesses based overseas.

Should an arbitration panel finds that a government measure might diminish the corporation’s projected profits, it has the power to grant compensation of vast sums, potentially billions.

These sums are based not on tangible damages but funds the tribunal officials decide the company could potentially have made. The state may have to abandon its policy. It will be deterred from enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being filed, as corporations take cues from each other, and private equity finance suits in return for a portion of the settlements. The consequence? Sovereignty and democracy are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the rulings enacted by parliaments is that this provision has been written – without public consent, and frequently under a climate of profound opacity – within international trade agreements.

A Specific Example: The Whitehaven Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer ruled that plans to excavate the first major coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the previous government, which had agreed to the questionable argument that the mine would have had zero effect on climate commitments. The incoming administration later cancelled the permission the Tories had issued. Currently, this success could be compromised by an secret arbitration panel reporting to only the companies bringing the case.

Last August, a corporate entity whose ultimate owners are based in the Cayman Islands filed a lawsuit against the UK government. Last week a arbitration panel in the United States was convened to adjudicate on it.

The company is litigating against the UK for the revenue it could have earned if the mine had been permitted to proceed. Citizens have no clear indication how much this sum represents. Which individual is representing it in opposition to the British government? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the domestic court upholds it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

The Russian Challenge

On the same day that the court on the coal mine dispute was established, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. Details are little of the case so far, but it is highly possible that he will utilise the arbitration process to fight the restrictions the UK imposed on him after the Russian aggression. He has previously initiated proceedings against a small nation with similar intent, demanding $16bn: equivalent to half of government’s annual revenue. Among the lawyers on his side? a prominent lawyer, married to the previous PM.

Legal experts contend that the EU’s procrastination in using frozen Russian assets as guarantee for its financial support package stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that such things were not possible. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, told us: “The UK has signed investment treaty after trade deal and we have never seen a case in the past.” An adviser on this issue described critics of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about these lawsuits. Warnings that “as corporations grasp the influence bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were dismissed with scepticism.

That threat has come to pass. In the current period, energy and mining firms have initiated a record number of cases against nations rich and poor, challenging – similar to the Cumbrian coalmine – official measures to stop climate breakdown. Companies have so far won $114bn by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP