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What is your understand our system of government operates? Perhaps something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills become law. Statutes is upheld by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Emergence of Offshore Tribunals

In the modern era, overseas companies, along with the wealthy individuals that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels made up of business advocates. The cases are held in secret. Unlike our courts, these tribunals provide no right of appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, including companies based in this country. The door is open solely for corporations operating from foreign soil.

When a secret court determines that a legislative action might diminish the corporation’s expected profits, it may order damages of hundreds of millions, potentially billions.

These sums are based not on tangible damages but compensation the arbitrators determine the company would perhaps have made. The administration may have to abandon its policy. It becomes deterred from passing future laws along the same lines, due to the risk of facing litigation.

A System Growing Exponentially

Historically high figures of cases are being initiated, as companies take cues from each other, and hedge funds finance suits in exchange for a portion of the awards. The result? Sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the rulings enacted by legislatures is that this stipulation has been inserted – without public consent, and typically amid an atmosphere of profound opacity – into international trade agreements.

A Concrete Example: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the senior court. The judge found that proposals to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have had zero effect on national carbon targets. The Labour government later cancelled the licence the previous administration had issued. Now, this success could be compromised by an secret arbitration panel answering to exclusively the companies petitioning it.

During August, a company whose beneficial owners are based in the Cayman Islands lodged a claim against the UK government. The previous week a arbitration panel in the United States was established to adjudicate on it.

This firm is litigating against the UK for the revenue it might have made if the mine had been allowed to go ahead. We have no clear indication how much this could amount to. Which individual is acting on its behalf challenging the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot the MP. The state passes a law, the national judiciary upholds it, then a international entity disputes it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the mining lawsuit was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. 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 levied against him after the Russian aggression. He has already started suing another European state with similar intent, seeking sixteen billion dollars: an amount representing half government’s yearly income. Included in the lawyers representing him there? a prominent lawyer, wife of the ex-UK leader.

International law scholars believe that the EU’s delay in using frozen state funds as collateral for its loan to Ukraine arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over elected governments could be blocking the funds Ukraine urgently requires.

False Assurances and Growing Risks

Politicians promised that these scenarios were not possible. Years ago, a government leader, promoting the biggest and most dangerous of all investment pacts, told us: “The UK has signed trade agreement upon trade deal and we have never seen a case in the past.” A consultant on this topic labelled critics of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “when companies start to realise the influence they’ve been granted, they will turn their attention from the weak nations to the developed economies” were dismissed with scepticism.

That prediction has come to pass. This year, oil and gas and mining firms have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – similar to the Whitehaven project – government attempts to stop global warming. Firms have thus far won $114bn by using ISDS, of which energy giants have obtained the majority. That equates to the combined GDP