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What is your reckon our system of government functions? Maybe something like this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills become law. Legislation is maintained by the courts. Simple as that. Yet, that’s how it used to work. Those days are over.

The Emergence of Offshore Courts

Today, international firms, along with the oligarchs who own them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of commercial attorneys. Such disputes take place in secret. In contrast to domestic courts, these bodies allow no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even companies based in this country. Access is granted solely for entities registered abroad.

When a secret court rules that a government measure might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, even billions.

This compensation are based not on actual losses but money the arbitrators conclude the company might otherwise have made. The administration could be forced to drop the legislation. It will be discouraged from introducing similar legislation in that area, due to the risk of being sued.

A System Spiralling Out of Control

Unprecedented levels of cases are being filed, as companies take cues from each other, and private equity bankroll lawsuits in return for a cut of the awards. The consequence? Democratic sovereignty and popular rule are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the rulings taken by legislatures is that this provision has been incorporated – absent public approval, and often in an atmosphere of profound opacity – into bilateral investment treaties.

A Specific Example: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the High Court. The justice determined that proposals to excavate the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have had no consequence on our carbon budgets. The Labour government later cancelled the consent the Tories had issued. Currently, this legal outcome could be compromised by an foreign court reporting to only the corporations petitioning it.

During August, a company whose beneficial owners are located in the Cayman Islands filed a lawsuit versus the UK government. Recently a arbitration panel in Washington DC was set up to adjudicate on it.

This firm is seeking compensation from the UK for the money it would have generated if the mine had received permission to go ahead. We have little idea how much this sum represents. Which individual is serving as its counsel challenging the UK administration? An elected representative, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The government passes a law, the domestic court upholds it, then a international entity challenges it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

On the same day that the panel on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case to date, but it seems likely that he’ll use the arbitration process to challenge the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has previously started suing a small nation with similar intent, claiming a colossal sum: an amount representing half nation's yearly income. Among the legal team representing him there? Cherie Blair, spouse of the former British prime minister.

Trade specialists believe that the EU’s procrastination in using frozen Russian assets as security for its aid for Ukraine is due to concerns within Belgium 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 finance Ukraine desperately needs.

False Assurances and Escalating Risks

We were assured that such things could not occur. In 2014, a former prime minister, promoting the biggest and most dangerous of all these agreements, told us: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” An adviser on this matter accused campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by such legal actions. Warnings that “as corporations grasp the authority bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were greeted by scepticism.

That threat has now materialised. In the current period, energy and mining firms have filed a record number of cases against nations rich and poor, contesting – similar to the UK mine – state efforts to prevent environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded the majority. That represents the combined GDP