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Can you reckon our system of government functions? Maybe along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. The law is upheld by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, along with the billionaires behind them, are able to litigate against nation states for the policies they pass, at secret arbitration panels composed of business advocates. The cases are held away from public scrutiny. Differing from national judiciaries, these bodies grant no avenue for appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, including businesses based in this country. The door is open solely for entities operating from foreign soil.

When a secret court determines that a legislative action may compromise the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

This compensation are based not on real financial harm but funds the panel members determine the company might otherwise have made. The government may have to abandon its policy. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being initiated, as firms observe each other, and hedge funds fund legal actions in exchange for a share of the takings. The consequence? National sovereignty and popular rule are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices made by legislatures is that this provision has been inserted – without democratic mandate, and typically amid conditions of profound opacity – inside bilateral investment treaties.

A Concrete Case: The Cumbrian Coalmine

Last year, activists secured a significant win at the senior court. The judge determined that plans to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine would have zero effect on climate commitments. The new government then withdrew the licence the Tories had approved. Currently, this legal outcome could be compromised by an secret arbitration panel reporting to no one but the companies petitioning it.

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

The claimant is litigating against the UK for the revenue it could have earned if the mine had been permitted to commence operations. We have no clear indication how much this might be. Which individual is serving as its counsel against the British government? A sitting MP, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government enacts a policy, the national judiciary supports it, then a international entity challenges it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

On the same day that the tribunal on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against another European state on these grounds, claiming a colossal sum: equivalent to half of government’s yearly income. Included in the counsel on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars contend that the EU’s procrastination in utilising seized oligarchs' funds as guarantee for its financial support package is due to Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over sovereign states could be blocking the finance Ukraine desperately needs.

Empty Promises and Escalating Risks

The public was told that these scenarios were not possible. In 2014, a senior politician, promoting the largest and riskiest of all investment pacts, declared: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” An expert on this topic labelled critics of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations had to worry about ISDS claims. Predictions that “as corporations grasp the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That threat has come to pass. In the current period, energy and extraction companies have initiated a record number of claims against nations both wealthy and developing, opposing – similar to the Whitehaven project – official measures to halt global warming. Companies have to date won $114bn through ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP