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What is your reckon our system of government functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills become law. The law is maintained by the courts. Simple as that. Well, that’s how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, and the oligarchs behind them, have the power to sue nation states for the regulations they pass, at private courts made up of corporate lawyers. The cases take place behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or legal review. You or I cannot take a case to them, nor can our government, including businesses headquartered in this country. Access is granted exclusively to businesses registered abroad.

When a secret court determines that a law or policy may compromise the corporation’s anticipated profits, it can award damages of vast sums, even billions.

These awards constitute not actual losses but compensation the panel members conclude the company would perhaps have made. The government may have to abandon its policy. It is discouraged from introducing similar legislation of a similar nature, worried about facing litigation.

A Process Spiralling Out of Control

Historically high figures of disputes are being initiated, as firms take cues from each other, and investment funds finance suits in exchange for a portion of the settlements. The consequence? National sovereignty and popular rule are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the rulings made by parliaments is that this stipulation has been inserted – absent public approval, and typically amid an atmosphere of profound opacity – into trade treaties.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, a conservation group won a great victory at the high court. The justice ruled that proposals to open the first new deep coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no consequence on national carbon targets. The Labour government then withdrew the consent the Tories had issued. Today, this legal outcome could be compromised by an secret arbitration panel accountable to no one but the companies petitioning it.

Last August, a corporate entity whose beneficial owners are based in the offshore financial centre filed a lawsuit against the UK government. Last week a dispute settlement body in the United States was set up to consider the case.

The company is suing the UK for the revenue it would have generated if the mine had been permitted to commence operations. We have little idea how much this might be. Who is acting on its behalf against the British government? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot the MP. The administration makes a decision, the domestic court supports it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case so far, but it seems likely that he’ll use the arbitration process to fight the penalties the UK enacted against him following the war in Ukraine. He has previously started suing another European state with similar intent, seeking sixteen billion dollars: an amount representing half state's yearly budget. Included in the legal team representing him there? Cherie Blair, spouse of the previous PM.

Trade specialists argue that the EU’s procrastination in utilising seized state funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over elected governments might be preventing the funds Ukraine desperately needs.

False Assurances and Growing Costs

We were assured that these scenarios were not possible. Years ago, a senior politician, advocating for the most significant and hazardous of all such treaties, stated: “The UK has signed investment treaty upon trade deal and we have never seen a case in the past.” An adviser on this topic described critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations begin to understand the authority they now possess, they will shift their focus from the vulnerable countries to the developed economies” were greeted by scepticism.

That prediction has come to pass. This year, oil and gas and mining firms have initiated a historic level of claims against nations across the economic spectrum, challenging – like the example of the Whitehaven project – official measures to halt environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP