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How do you understand our system of government works? It could be similar to this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. That's it. Yet, that’s how it operated in the past. Those days are over.

The Advent of Offshore Arbitration Panels

Today, overseas companies, and the billionaires that control them, are able to litigate against governments for the regulations they pass, at offshore tribunals staffed by corporate lawyers. The cases take place in secret. In contrast to domestic courts, these bodies grant no avenue for appeal or legal review. The general public cannot take a case to them, nor can our government, including enterprises based in this country. The door is open solely for businesses based overseas.

If a tribunal determines that a legislative action might diminish 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 actual losses but money the arbitrators decide the company could potentially have made. The government may have to abandon its policy. It will be hesitant to introducing similar legislation along the same lines, for fear of facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as corporations take cues from each other, and private equity finance suits in return for a share of the takings. The consequence? National sovereignty and popular rule are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the decisions taken by elected bodies is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of extreme secrecy – inside international trade agreements.

A Specific Case: The Cumbrian Coal Mine

Last year, a conservation group secured a significant win at the High Court. The justice ruled that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have no impact on climate commitments. The Labour government then withdrew the licence the former government had approved. Currently, this legal outcome could be compromised by an offshore tribunal accountable to exclusively the companies filing the suit.

In August, a firm whose beneficial owners reside in the offshore financial centre lodged a claim against the UK government. Recently a arbitration panel in the United States was set up to consider the case.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Who is acting on its behalf against the UK administration? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The administration makes a decision, the national judiciary supports it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

The Russian Challenge

Concurrently that the court on the mining lawsuit was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case to date, but it is highly possible that he may employ the arbitration process to challenge the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has already filed a claim against another European state for this reason, seeking $16bn: half that nation's yearly budget. Among the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists argue that the EU’s hesitation in using frozen state funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over democratic administrations could be blocking the finance Ukraine desperately needs.

Empty Promises and Mounting Risks

We were assured that such things could not occur. In 2014, a senior politician, advocating for the most significant and hazardous of all these agreements, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter labelled critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “as corporations start to realise the authority they now possess, they will shift their focus from the poorer states to the wealthy nations” were dismissed with widespread derision.

That prediction has come to pass. This year, oil and gas and resource corporations have initiated a unprecedented number of claims against nations both wealthy and developing, challenging – like the example of the Whitehaven project – government attempts to stop climate breakdown. Corporations have so far won $114bn through ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP