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What is your understand our system of government functions? It could be something like this. We elect MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Legislation is maintained by the courts. That's it. Well, that’s how it operated in the past. Not anymore.

The Advent of Offshore Arbitration Panels

In the modern era, foreign corporations, or the oligarchs who own them, have the power to sue nation states for the regulations they pass, at secret arbitration panels made up of business advocates. The cases are held behind closed doors. Differing from national judiciaries, these bodies provide no avenue for appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even companies operating from this country. They are open only to businesses based overseas.

If a tribunal finds that a legislative action could harm the corporation’s expected profits, it may order financial penalties of vast sums, potentially billions.

This compensation constitute not real financial harm but funds the tribunal officials decide the company could potentially have made. The state may have to rescind the measure. It becomes discouraged from enacting future policies of a similar nature, worried about being sued.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as companies take cues from each other, and investment funds fund legal actions for a share of a share of the takings. The consequence? National sovereignty and democratic governance are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the rulings enacted by legislatures is that this clause has been inserted – without democratic mandate, and frequently under conditions of profound opacity – within international trade agreements.

A Real-World Case: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the High Court. The justice found that proposals to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine would have had no consequence on climate commitments. The Labour government then withdrew the licence the previous administration had issued. Currently, this legal outcome is under threat by an offshore tribunal reporting to only the corporations petitioning it.

In August, a company whose ultimate owners are based in the tax haven initiated proceedings against the UK government. The previous week a arbitration panel in Washington DC was established to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had received permission to proceed. The public has little idea how much this could amount to. What legal team is serving as its counsel in opposition to the state? A member of parliament, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The administration enacts a policy, the national judiciary validates it, then a overseas corporation challenges it through an undemocratic private court, and a elected official works for its behalf.

A Sanctions Challenge

Simultaneously that the panel on the mining lawsuit was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know scarce of the case to date, but it appears probable that he’ll use the arbitration process to contest the restrictions the UK enacted against him following the war in Ukraine. He has initiated proceedings against a small nation on these grounds, seeking $16bn: half that state's yearly budget. Among the legal team on his side? the wife of a former prime minister, wife of the previous PM.

Legal experts argue that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, secretive influence over sovereign states might be preventing the funds Ukraine critically depends on.

Misleading Claims and Escalating Threats

Politicians promised that these events were not possible. In 2014, a senior politician, promoting the largest and riskiest of all such treaties, stated: “Britain has agreed to trade deal after trade deal and we have never seen a issue in the past.” A consultant on this topic labelled activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations had to worry about ISDS claims. Warnings that “once firms begin to understand the authority they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were met with widespread derision.

That warning is now a reality. This year, fossil fuel and resource corporations have initiated a historic level of claims against nations rich and poor, contesting – similar to the UK mine – government attempts to halt environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP