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How do you perceive our system of government operates? It could be similar to this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. The law are enforced by the courts. Simple as that. Well, that used to be how it once functioned. Not anymore.

The Advent of Secret Arbitration Panels

Nowadays, overseas companies, along with the oligarchs behind them, are able to litigate against nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. These proceedings are held behind closed doors. Differing from national judiciaries, these tribunals allow no right of appeal or judicial review. The general public cannot take a case to them, nor can our government, or even companies headquartered in this country. Access is granted solely for entities based overseas.

If a tribunal rules that a government measure might diminish the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

This compensation represent not real financial harm but compensation the panel members determine the company could potentially have made. The administration could be forced to drop the legislation. It becomes deterred from enacting future policies of a similar nature, due to the risk of facing litigation.

A System Spiralling Out of Control

Record numbers of legal actions are being brought, as firms take cues from each other, and hedge funds finance suits for a share of a cut of the awards. The result? Democratic sovereignty and democracy are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the choices enacted by parliaments is that this clause has been inserted – absent public approval, and typically amid conditions of total confidentiality – inside trade treaties.

A Concrete Instance: The UK Coalmine

A year ago, activists secured a significant win at the senior court. The justice ruled that schemes to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have no impact on climate commitments. The Labour government later cancelled the permission the Tories had granted. Now, this victory is under threat by an foreign court accountable to exclusively the corporations filing the suit.

Last August, a firm whose ultimate owners are located in the Cayman Islands filed a lawsuit versus the UK government. The previous week a tribunal in the United States was set up to adjudicate on it.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to go ahead. The public has no idea how much this sum represents. What legal team is acting on its behalf challenging the British government? A sitting MP, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The government makes a decision, the national judiciary validates it, then a foreign company challenges it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the coalmine case was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it appears probable that he’ll use the tribunal to contest the penalties the UK imposed on him subsequent to the Russian aggression. He has started suing Luxembourg for this reason, demanding $16bn: equivalent to half of government’s annual revenue. Included in the counsel representing him there? a prominent lawyer, married to the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized oligarchs' funds as security for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states could be blocking the money Ukraine critically depends on.

Misleading Claims and Growing Costs

The public was told that such things wouldn’t happen. Years ago, a government leader, championing the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade deal after trade deal and we have never seen a issue in the past.” An adviser on this matter described critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states needed to fear these lawsuits. Warnings that “once firms begin to understand the power they now possess, they will redirect their efforts from the weak nations to the strong ones” were dismissed with general mockery.

That prediction has now materialised. In the current period, fossil fuel and extraction companies have lodged a unprecedented number of claims against nations across the economic spectrum, contesting – like the example of the Whitehaven project – official measures to stop global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP