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How do you understand our system of government works? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Yet, that used to be how it operated in the past. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, overseas companies, along with the wealthy individuals that control them, can sue elected administrations for the regulations they pass, at private courts composed of commercial attorneys. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these tribunals allow no right of appeal or judicial review. You or I are unable to file a case to them, just as our government, or even businesses operating from this country. Access is granted solely for corporations registered abroad.

Should an arbitration panel determines that a law or policy may compromise the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

These sums constitute not actual losses but compensation the tribunal officials determine the company might otherwise have made. The administration may have to drop the legislation. It will be deterred from enacting future policies of a similar nature, worried about being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as firms take cues from each other, and investment funds fund legal actions in exchange for a share of the takings. The consequence? Democratic sovereignty and democratic governance are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings made by legislatures is that this stipulation has been incorporated – without public consent, and often in conditions of profound opacity – into trade treaties.

A Concrete Example: The UK Coalmine

A year ago, activists secured a significant win at the senior court. The judge ruled that plans to open the first deep coalmine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had no consequence on national carbon targets. The Labour government subsequently revoked the permission the Tories had issued. Today, this legal outcome could be compromised by an foreign court reporting to only the companies filing the suit.

Last August, a corporate entity whose final controllers are located in the tax haven lodged a claim against the UK government. Last week a dispute settlement body in the United States was established to adjudicate on it.

The company is litigating against the UK for the money it might have made if the mine had received permission to commence operations. We have little idea how much this sum represents. Who is serving as its counsel against the British government? An elected representative, and former attorney-general in the previous government, that great patriot the MP. The administration makes a decision, the high court supports it, then a international entity contests it through an unaccountable arbitration panel, and a elected official represents its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coal mine dispute was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case so far, but it seems likely that he may employ the tribunal to contest the penalties the UK enacted against him subsequent to the war in Ukraine. He has started suing another European state with similar intent, claiming sixteen billion dollars: an amount representing half government’s yearly income. Among the legal team representing him there? a prominent lawyer, married to the ex-UK leader.

Legal experts argue that the EU’s delay in utilising seized Russian assets as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Escalating Threats

We were assured that such things were not possible. In 2014, a government leader, advocating for the biggest and most dangerous of all these agreements, told us: “The UK has signed investment treaty upon trade deal and there has never been a case in the past.” An expert on this matter described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by such legal actions. Predictions that “as corporations start to realise the authority bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were met with general mockery.

That threat has now materialised. Recently, fossil fuel and extraction companies have initiated a record number of claims against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – government attempts to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP