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Can you understand our system of government operates? Perhaps something like this. We elect MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. However, that used to be how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, and the wealthy individuals that control them, can sue governments for the laws they pass, at secret arbitration panels made up of corporate lawyers. These proceedings are held behind closed doors. Differing from national judiciaries, these tribunals provide no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even enterprises based in this country. Access is granted only to entities based overseas.

Should an arbitration panel determines that a law or policy might diminish the corporation’s anticipated profits, it can award financial penalties of vast sums, running into billions.

These sums are based not on real financial harm but funds the tribunal officials decide the company might otherwise have made. The state might be compelled to drop the legislation. It will be deterred from introducing similar legislation in that area, worried about being sued.

A Mechanism Running Rampant

Unprecedented levels of cases are being filed, as companies learn from each other, and hedge funds finance suits for a share of a portion of the takings. The consequence? National sovereignty and democratic governance are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the rulings enacted by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Real-World Instance: The Cumbrian Coal Mine

A year ago, activists won a great victory at the High Court. The justice ruled that plans to dig the first deep coalmine in the UK for a generation, in northwest England, were found to be unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine would have zero effect on climate commitments. The Labour government subsequently revoked the permission the Tories had granted. Today, this legal outcome faces being overturned by an offshore tribunal accountable to only the companies filing the suit.

Last August, a corporate entity whose ultimate owners are located in the offshore financial centre filed a lawsuit against the UK government. Recently a arbitration panel in the United States was set up to consider the case.

This firm is litigating against the UK for the revenue it would have generated if the mine had received permission to proceed. The public has little idea how much this could amount to. Which individual is acting on its behalf against the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government passes a law, the high court supports it, then a overseas corporation contests it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Case

On the same day that the court on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case to date, but it is highly possible that he will utilise the arbitration process to fight the penalties the UK imposed on him following the invasion of Ukraine. He has previously initiated proceedings against another European state on these grounds, seeking a colossal sum: half that nation's annual revenue. Among the legal team representing him there? the wife of a former prime minister, spouse of the previous PM.

Trade specialists contend that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its financial support package is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

Misleading Claims and Escalating Costs

The public was told that these scenarios were not possible. Years ago, a senior politician, advocating for the largest and riskiest of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” An expert on this topic described critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by these lawsuits. Predictions that “when companies grasp the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by widespread derision.

That warning is now a reality. Recently, fossil fuel and mining firms have filed a record number of cases against nations across the economic spectrum, contesting – similar to the UK mine – state efforts to stop climate breakdown. Firms have thus far won $114bn via ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP