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How do you perceive our system of government operates? Maybe similar to this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, international firms, or the billionaires behind them, can sue nation states for the regulations they pass, at offshore tribunals made up of business advocates. Such disputes are held in secret. In contrast to domestic courts, these tribunals allow no right of appeal or legal review. The general public cannot take a case to them, just as our government, or even companies headquartered in this country. They are open solely for businesses based overseas.

Should an arbitration panel rules that a legislative action could harm the corporation’s anticipated profits, it may order compensation of vast sums, potentially billions.

These awards represent not real financial harm but money the tribunal officials determine the company could potentially have made. The administration could be forced to abandon its policy. It will be discouraged from introducing similar legislation along the same lines, for fear of being sued.

A System Spiralling Out of Control

Record numbers of cases are being filed, as companies take cues from each other, and hedge funds finance suits in return for a cut of the settlements. The consequence? National sovereignty and popular rule are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the decisions enacted by legislatures is that this stipulation has been incorporated – absent public approval, and typically amid conditions of profound opacity – into trade treaties.

A Concrete Example: The Cumbrian Coalmine

A year ago, environmental campaigners won a great victory at the High Court. The judge determined that plans to dig the first new deep coal mine in the UK for a generation, in northwest England, had been illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have had no consequence on climate commitments. The Labour government then withdrew the permission the former government had issued. Currently, this success is under threat by an secret arbitration panel accountable to only the companies bringing the case.

Last August, a firm whose final controllers reside in the tax haven filed a lawsuit challenging the UK government. The previous week a arbitration panel in the United States was established to consider the case.

This firm is litigating against the UK for the profits it could have earned if the mine had received permission to proceed. The public has no clear indication how much this might be. Which individual is representing it challenging the state? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The government passes a law, the domestic court upholds it, then a foreign company challenges it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case to date, but it is highly possible that he’ll use the tribunal to challenge the sanctions the UK enacted against him following the Russian aggression. He has previously started suing a small nation for this reason, demanding $16bn: half that state's yearly income. Among the legal team acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Legal experts contend that the EU’s delay in utilising seized state funds as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over sovereign states might be preventing the finance Ukraine critically depends on.

False Assurances and Growing Costs

Politicians promised that these events could not occur. In 2014, a former prime minister, advocating for the largest and riskiest of all such treaties, told us: “The UK has signed trade agreement after trade deal and there has not been a case in the past.” A consultant on this matter labelled activists of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations should be concerned by these lawsuits. Predictions that “when companies begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were met with scepticism.

That prediction has come to pass. In the current period, fossil fuel and resource corporations have lodged a unprecedented number of cases against nations across the economic spectrum, contesting – like the example of the UK mine – state efforts to stop global warming. Corporations have so far won $114bn via ISDS, of which oil majors have been awarded the majority. That represents the combined GDP