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What is your perceive our system of government functions? Maybe along the lines of this. We elect MPs. They legislate on bills. If a majority is obtained, the bills become law. The law are enforced by the courts. That's it. Well, that was how it used to work. Not anymore.

The Emergence of Offshore Courts

Today, international firms, along with the billionaires that control them, are able to litigate against governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. The cases are conducted behind closed doors. In contrast to domestic courts, these tribunals grant no opportunity to appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even businesses based in this country. They are open only to corporations operating from foreign soil.

If a tribunal rules that a law or policy 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 constitute not tangible damages but money the tribunal officials conclude the company might otherwise have made. The government could be forced to rescind the measure. It becomes hesitant to passing future laws in that area, for fear of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being filed, as companies take cues from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The result? National sovereignty and democratic governance are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the decisions taken by parliaments is that this provision has been written – without public consent, and frequently under conditions of profound opacity – into bilateral investment treaties.

A Specific Example: The UK Coalmine

Last year, environmental campaigners secured a significant win at the high court. The presiding officer ruled that proposals to excavate the first deep coalmine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on national carbon targets. The new government subsequently revoked the consent the previous administration had granted. Now, this legal outcome faces being overturned by an secret arbitration panel answering to exclusively the entities filing the suit.

Last August, a corporate entity whose ultimate owners are based in the tax haven initiated proceedings versus the UK government. Last week a dispute settlement body in the United States was convened to adjudicate on it.

This firm is litigating against the UK for the profits it could have earned if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. Which individual is representing it against the state? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The government passes a law, the national judiciary supports it, then a foreign company challenges it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

The Russian Lawsuit

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it is highly possible that he’ll use the arbitration process to challenge the sanctions the UK imposed on him following the Russian aggression. He has already initiated proceedings against a small nation for this reason, claiming $16bn: equivalent to half of state's annual revenue. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

Legal experts believe that the EU’s procrastination in leveraging immobilised Russian assets as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states may be obstructing the money Ukraine urgently requires.

Empty Promises and Growing Risks

Politicians promised that these events could not occur. Years ago, a government leader, advocating for the largest and riskiest of all such treaties, told us: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” An adviser on this topic accused activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “once firms grasp the power they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were dismissed with general mockery.

That warning has come to pass. This year, energy and extraction companies have initiated a unprecedented number of suits against nations rich and poor, challenging – like the example of the Whitehaven project – official measures to prevent climate breakdown. Corporations have to date won vast sums through ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP