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How do you perceive our system of government functions? It could be something like this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills are enacted as law. Legislation are enforced by the courts. That's it. Yet, that used to be how it operated in the past. Those days are over.

The Advent of Offshore Tribunals

In the modern era, international firms, and the billionaires that control them, can sue elected administrations for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. The cases are conducted away from public scrutiny. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. The general public cannot take a case to them, nor can our government, including companies operating from this country. Access is granted only to entities registered abroad.

When a secret court determines that a law or policy might diminish the corporation’s expected profits, it can award financial penalties of hundreds of millions, potentially billions.

This compensation are based not on tangible damages but funds the panel members decide the company could potentially have made. The government may have to drop the legislation. It becomes discouraged from introducing similar legislation of a similar nature, worried about being sued.

A Process Running Rampant

Historically high figures of disputes are being filed, as corporations learn from each other, and investment funds fund legal actions in exchange for a cut of the settlements. The outcome? Sovereignty and popular rule are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the decisions taken by legislatures is that this stipulation has been inserted – without democratic mandate, and typically amid conditions of profound opacity – into international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

Last year, a conservation group achieved a major legal triumph at the High Court. The presiding officer determined that proposals to dig the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration then withdrew the licence the former government had issued. Currently, this legal outcome faces being overturned by an offshore tribunal answering to exclusively the corporations petitioning it.

During August, a firm whose final controllers are based in the offshore financial centre lodged a claim against the UK government. The previous week a dispute settlement body in the US capital was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had received permission to proceed. Citizens have no clear indication how much this might be. Which individual is representing it in opposition to the UK administration? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the domestic court supports it, then a foreign company disputes it through an unaccountable offshore tribunal, and a sitting MP 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 subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case to date, but it appears probable that he may employ the arbitration process to challenge the restrictions the UK imposed on him subsequent to the Russian aggression. He has already started suing a small nation for this reason, seeking sixteen billion dollars: half that nation's yearly income. Included in the counsel on his side? a prominent lawyer, spouse of the ex-UK leader.

International law scholars believe that the EU’s hesitation in using frozen oligarchs' funds as security for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states may be obstructing the finance Ukraine desperately needs.

Empty Promises and Growing Costs

We were assured that these events could not occur. In 2014, a senior politician, advocating for the biggest and most dangerous of all investment pacts, told us: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this issue labelled critics of “scaremongering … in reality, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries had to worry about ISDS claims. Predictions that “as corporations begin to understand the authority they now possess, they will turn their attention from the poorer states to the developed economies” were greeted by general mockery.

That warning has come to pass. This year, oil and gas and mining firms have lodged a record number of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – official measures to prevent global warming. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP