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What is your understand our system of government functions? Maybe similar to this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills become law. The law is upheld by the courts. End of story. However, that used to be how it operated in the past. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, and the oligarchs that control them, are able to litigate against nation states for the regulations they pass, at private courts staffed by business advocates. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies allow no opportunity to appeal or judicial review. You or I are unable to file a case to them, just as our government, or even businesses based in this country. They are open exclusively to entities based overseas.

If a tribunal determines that a law or policy might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

This compensation constitute not actual losses but funds the tribunal officials determine the company would perhaps have made. The administration could be forced to rescind the measure. It is discouraged from enacting future policies along the same lines, worried about facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being brought, as companies learn from each other, and hedge funds bankroll lawsuits in return for a portion of the awards. The result? Sovereignty and democratic governance are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the rulings enacted by parliaments is that this stipulation has been inserted – without public consent, and frequently under a climate of profound opacity – within international trade agreements.

A Specific Example: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The justice found that proposals to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine could have zero effect on climate commitments. The incoming administration then withdrew the consent the previous administration had granted. Now, this victory is under threat by an offshore tribunal accountable to no one but the entities bringing the case.

Last August, a company whose beneficial owners are located in the Cayman Islands initiated proceedings against the UK government. The previous week a dispute settlement body in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had received permission to proceed. The public has no clear indication how much this sum represents. Which individual is acting on its behalf challenging the state? A sitting MP, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the high court validates it, then a overseas corporation disputes it through an unaccountable private court, and a sitting MP acts on its behalf.

The Russian Case

Simultaneously that the tribunal on the mining lawsuit was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. The public knows nothing of the case at present, but it appears probable that he’ll use the tribunal to contest the restrictions the UK levied against him following the war in Ukraine. He has filed a claim against a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of government’s yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars believe that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations may be obstructing the finance Ukraine urgently requires.

Empty Promises and Mounting Risks

Politicians promised that these events could not occur. In 2014, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to trade agreement upon trade deal and we have never seen a case in the past.” An adviser on this issue accused activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries had to worry about such legal actions. Warnings that “once firms start to realise the influence they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That threat has now materialised. This year, energy and resource corporations have initiated a record number of cases against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – official measures to halt global warming. Firms have to date won $114bn by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP