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What is your understand our system of government functions? Perhaps something like this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. End of story. Well, that’s how it once functioned. Those days are over.

The Rise of Offshore Arbitration Panels

Nowadays, international firms, and the oligarchs that control them, are able to litigate against nation states for the policies they pass, at private courts made up of commercial attorneys. Such disputes are conducted behind closed doors. Unlike our courts, these tribunals provide no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, including businesses based in this country. They are open only to corporations based overseas.

When a secret court determines that a legislative action could harm the corporation’s anticipated profits, it has the power to grant compensation of vast sums, running into billions.

These sums represent not real financial harm but compensation the arbitrators determine the company might otherwise have made. The government could be forced to abandon its policy. It will be hesitant to passing future laws along the same lines, for fear of being sued.

A Process Running Rampant

Record numbers of cases are being initiated, as companies take cues from each other, and investment funds fund legal actions for a share of a share of the settlements. The result? Democratic sovereignty and democracy are turning into too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the choices made by elected bodies is that this provision has been incorporated – absent public approval, and typically amid a climate of profound opacity – inside trade treaties.

A Specific Instance: The UK Coalmine

Last year, activists secured a significant win at the High Court. The justice ruled that schemes to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The incoming administration later cancelled the licence the former government had granted. Currently, this success is under threat by an offshore tribunal accountable to only the companies bringing the case.

During August, a company whose final controllers are based in the Cayman Islands initiated proceedings against the UK government. The previous week a tribunal in the US capital was set up to adjudicate on it.

This firm is litigating against the UK for the money it would have generated if the mine had received permission to go ahead. Citizens have little idea how much this could amount to. Who is representing it against the state? An elected representative, and former attorney-general in the outgoing administration, that great patriot the MP. The government enacts a policy, the national judiciary validates it, then a international entity disputes it through an undemocratic arbitration panel, and a elected official acts on its behalf.

An Oligarch's Case

On the same day that the court on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case to date, but it seems likely that he may employ the arbitration process to fight the sanctions the UK imposed on him after the war in Ukraine. He has already filed a claim against Luxembourg with similar intent, seeking sixteen billion dollars: equivalent to half of state's yearly budget. Included in the legal team on his side? the wife of a former prime minister, wife of the previous PM.

Legal experts contend that the EU’s delay in using frozen oligarchs' funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over democratic administrations could be blocking the finance Ukraine urgently requires.

False Assurances and Mounting Threats

Politicians promised that these scenarios were not possible. Years ago, a government leader, advocating for the largest and riskiest of all such treaties, told us: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this topic labelled critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Cautionary notes that “when companies start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were greeted by general mockery.

That threat has now materialised. Recently, fossil fuel and mining firms have filed a record number of claims against nations across the economic spectrum, opposing – like the example of the Cumbrian coalmine – government attempts to halt global warming. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded the majority. That represents the combined GDP