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Can you understand our system of government operates? Maybe along the lines of this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills pass into law. Legislation is maintained by the courts. Simple as that. Yet, that’s how it operated in the past. Those days are over.

The Rise of Offshore Arbitration Panels

In the modern era, overseas companies, along with the wealthy individuals behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are held behind closed doors. In contrast to domestic courts, these tribunals grant no opportunity to appeal or legal review. You or I cannot take a case to them, nor can our government, or even businesses based in this country. Access is granted only to entities operating from foreign soil.

When a secret court determines that a legislative action might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, even billions.

These awards are based not on real financial harm but money the panel members conclude the company might otherwise have made. The administration might be compelled to drop the legislation. It is deterred from passing future laws of a similar nature, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of cases are being brought, as corporations observe each other, and private equity finance suits in return for a cut of the awards. The outcome? Democratic sovereignty and popular rule are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the decisions made by legislatures is that this stipulation has been incorporated – without democratic mandate, and often in an atmosphere of extreme secrecy – into international trade agreements.

A Real-World Case: The Whitehaven Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The judge found that plans to open the first deep coalmine in the UK for three decades, in northwest England, were illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine would have zero effect on climate commitments. The new government then withdrew the consent the Tories had issued. Now, this legal outcome could be compromised by an foreign court accountable to no one but the corporations petitioning it.

During August, a corporate entity whose ultimate owners are located in the Cayman Islands filed a lawsuit against the UK government. The previous week a dispute settlement body in Washington DC was established to hear it.

This firm is suing the UK for the money it would have generated if the mine had received permission to commence operations. The public has no idea how much this might be. Who is representing it challenging the British government? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The state passes a law, the national judiciary supports it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coal mine dispute was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case so far, but it appears probable that he will utilise the arbitration process to fight the penalties the UK levied against him following the Russian aggression. He has previously started suing another European state on these grounds, seeking $16bn: an amount representing half nation's yearly budget. Included in the counsel representing him there? a prominent lawyer, married to the previous PM.

Legal experts believe that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations may be obstructing the money Ukraine critically depends on.

Misleading Claims and Mounting Risks

Politicians promised that such things could not occur. Previously, a former prime minister, advocating for the largest and riskiest of all such treaties, stated: “Britain has agreed to trade deal upon trade deal and there has never been a issue in the past.” A consultant on this issue described critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations start to realise the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That prediction is now a reality. In the current period, oil and gas and resource corporations have lodged a unprecedented number of cases against nations rich and poor, contesting – as in the case of the UK mine – government attempts to halt global warming. Firms have thus far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP