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What is your reckon our system of government functions? Maybe similar to this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. That's it. However, that’s how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

Today, overseas companies, and the billionaires who own them, can sue governments for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are held away from public scrutiny. Differing from national judiciaries, these panels allow no avenue for appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, or even companies operating from this country. Access is granted only to entities operating from foreign soil.

Should an arbitration panel finds that a law or policy might diminish the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

This compensation represent not tangible damages but funds the panel members decide the company could potentially have made. The government could be forced to rescind the measure. It is deterred from introducing similar legislation along the same lines, worried about facing litigation.

A Process Growing Exponentially

Unprecedented levels of legal actions are being initiated, as corporations learn from each other, and investment funds bankroll lawsuits in exchange for a share of the awards. The result? National sovereignty and democracy are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the rulings enacted by parliaments is that this stipulation has been written – absent public approval, and often in a climate of profound opacity – inside international trade agreements.

A Real-World Example: The Cumbrian Coalmine

Twelve months ago, a conservation group 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, in northwest England, were found to be unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have no consequence on our carbon budgets. The Labour government subsequently revoked the licence the previous administration had granted. Currently, this victory faces being overturned by an foreign court accountable to no one but the companies bringing the case.

During August, a company whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. Last week a arbitration panel in Washington DC was set up to hear it.

This firm is suing the UK for the money it might have made if the mine had been permitted to proceed. We have no idea how much this could amount to. Who is acting on its behalf in opposition to the UK administration? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The administration makes a decision, the high court supports it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

Concurrently that the court on the coal mine dispute was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case at present, but it seems likely that he’ll use the tribunal to challenge the penalties the UK imposed on him following the invasion of Ukraine. He has previously initiated proceedings against another European state with similar intent, seeking sixteen billion dollars: equivalent to half of government’s annual revenue. Included in the legal team representing him there? a prominent lawyer, married to the previous PM.

Legal experts believe that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments may be obstructing the money Ukraine urgently requires.

Empty Promises and Growing Risks

Politicians promised that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the largest and riskiest of all these agreements, declared: “The UK has signed trade deal after trade deal and we have never seen a issue in the past.” A consultant on this issue described critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by these lawsuits. Warnings that “once firms begin to understand the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were met with general mockery.

That threat is now a reality. In the current period, fossil fuel and extraction companies have initiated a record number of cases against nations rich and poor, contesting – similar to the UK mine – official measures to halt global warming. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded the majority. That represents the combined GDP