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How do you perceive our system of government operates? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills become law. Statutes is maintained by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, and the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at offshore tribunals staffed by corporate lawyers. Such disputes are held behind closed doors. Unlike our courts, these bodies provide no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, including businesses headquartered in this country. They are open exclusively to entities based overseas.

When a secret court finds that a government measure may compromise the corporation’s anticipated profits, it has the power to grant damages of vast sums, potentially billions.

This compensation constitute not tangible damages but money the panel members conclude the company could potentially have made. The government could be forced to abandon its policy. It is deterred from passing future laws along the same lines, worried about facing litigation.

A Mechanism Growing Exponentially

Record numbers of cases are being initiated, as corporations take cues from each other, and investment funds bankroll lawsuits in exchange for a cut of the awards. The consequence? Sovereignty and democracy are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the decisions taken by elected bodies is that this stipulation has been inserted – without democratic mandate, and typically amid an atmosphere of profound opacity – inside international trade agreements.

A Specific Example: The Whitehaven Coalmine

A year ago, activists secured a significant win at the senior court. The presiding officer determined that proposals to excavate the first major coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the previous government, which had endorsed the questionable argument that the mine would have had no consequence on our carbon budgets. The incoming administration then withdrew the permission the former government had issued. Currently, this victory could be compromised by an offshore tribunal accountable to exclusively the entities petitioning it.

Last August, a company whose ultimate owners are based in the offshore financial centre filed a lawsuit against the UK government. Last week a arbitration panel in the US capital was convened to hear it.

The company is suing the UK for the profits it could have earned if the mine had been permitted to go ahead. We have little idea how much this sum represents. Which individual is representing it challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The administration passes a law, the high court supports it, then a international entity disputes it through an secretive arbitration panel, and a elected official represents its behalf.

The Russian Lawsuit

Concurrently that the court on the mining lawsuit was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case to date, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has previously filed a claim against another European state for this reason, seeking a colossal sum: an amount representing half nation's yearly income. Among the lawyers on his side? a prominent lawyer, spouse of the previous PM.

Trade specialists contend that the EU’s delay in utilising seized oligarchs' funds as guarantee for its financial support package stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over sovereign states could be blocking the finance Ukraine critically depends on.

Misleading Claims and Escalating Threats

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed investment treaty upon trade deal and we have never seen a case in the past.” An expert on this issue accused critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations needed to fear these lawsuits. Warnings that “when companies start to realise the influence bestowed upon them, they will turn their attention from the poorer states to the developed economies” were met with scepticism.

That threat is now a reality. This year, oil and gas and resource corporations have lodged a historic level of claims against nations rich and poor, contesting – like the example of the Whitehaven project – official measures to stop climate breakdown. Companies have to date won $114bn by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP