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How do you understand our system of government works? It could be something like this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Legislation is maintained by the courts. Simple as that. Yet, that used to be how it operated in the past. No longer.

The Advent of Offshore Arbitration Panels

In the modern era, international firms, and the oligarchs that control them, have the power to sue nation states for the policies they pass, at offshore tribunals composed of corporate lawyers. These proceedings are conducted behind closed doors. Differing from national judiciaries, these tribunals allow no opportunity to appeal or oversight by judges. You or I cannot take a case to them, just as our government, including enterprises based in this country. The door is open solely for corporations registered abroad.

If a tribunal rules that a law or policy might diminish the corporation’s anticipated profits, it can award compensation of vast sums, potentially billions.

These awards constitute not real financial harm but funds the tribunal officials decide the company would perhaps have made. The state might be compelled to rescind the measure. It will be discouraged from introducing similar legislation in that area, due to the risk of facing litigation.

A System Spiralling Out of Control

Historically high figures of legal actions are being brought, as firms learn from each other, and hedge funds fund legal actions for a share of a cut of the takings. The consequence? Democratic sovereignty and democracy are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the decisions enacted by parliaments is that this stipulation has been incorporated – without public consent, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Concrete Case: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the High Court. The presiding officer found that plans to excavate the first deep coalmine in the UK for three decades, in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine would have had no consequence on our carbon budgets. The new government later cancelled the permission the Tories had issued. Now, this success is under threat by an offshore tribunal accountable to exclusively the corporations bringing the case.

During August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim challenging the UK government. Recently a dispute settlement body in Washington DC was established to hear it.

This firm is suing the UK for the money it might have made if the mine had been allowed to proceed. Citizens have no idea how much this might be. Who is serving as its counsel challenging the British government? A sitting MP, and former attorney-general in the Conservative government, that great patriot Sir Geoffrey Cox. The government enacts a policy, the high court validates it, then a foreign company contests it through an unaccountable private court, and a member of our parliament acts on its behalf.

An Oligarch's Case

On the same day that the tribunal on the coal mine dispute was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows scarce of the case to date, but it appears probable that he’ll use the arbitration process to contest the sanctions the UK enacted against him after the Russian aggression. He has started suing another European state for this reason, claiming sixteen billion dollars: half that state's annual revenue. Included in the legal team representing him there? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists contend that the EU’s delay in using frozen state funds as collateral for its financial support package arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine desperately needs.

False Assurances and Growing Threats

The public was told that these events wouldn’t happen. Previously, a senior politician, championing the most significant and hazardous of all these agreements, stated: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” A consultant on this issue accused activists of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations had to worry about these lawsuits. Warnings that “when companies grasp the power they now possess, they will turn their attention from the weak nations to the wealthy nations” were met with general mockery.

That warning has come to pass. This year, energy and extraction companies have initiated a unprecedented number of cases against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – state efforts to prevent global warming. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP