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What is your reckon our system of government functions? It could be similar to this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. That's it. However, that’s how it once functioned. Those days are over.

The Emergence of Shadow Arbitration Panels

Nowadays, foreign corporations, and the oligarchs that control them, have the power to sue governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these bodies provide no avenue for appeal or judicial review. You or I are unable to file a case to them, and neither can our government, including enterprises headquartered in this country. The door is open only to entities based overseas.

If a tribunal rules that a law or policy may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

This compensation constitute not real financial harm but compensation the tribunal officials determine the company could potentially have made. The state may have to abandon its policy. It will be discouraged from introducing similar legislation in that area, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of cases are being brought, as corporations take cues from each other, and investment funds finance suits in exchange for a share of the takings. The outcome? National sovereignty and democracy are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the choices taken by legislatures is that this provision has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – inside trade treaties.

A Real-World Case: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the senior court. The presiding officer found that schemes to dig the first major coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have zero effect on national carbon targets. The Labour government later cancelled the consent the previous administration had issued. Now, this legal outcome faces being overturned by an foreign court reporting to no one but the corporations petitioning it.

During August, a firm whose final controllers are located in the Cayman Islands filed a lawsuit versus the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

The company is suing the UK for the money it might have made if the mine had been permitted to proceed. We have little idea how much this sum represents. Who is acting on its behalf in opposition to the state? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government enacts a policy, the high court upholds it, then a international entity challenges it through an secretive offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Case

Concurrently that the panel on the coal mine dispute was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case at present, but it seems likely that he will utilise the tribunal to challenge the sanctions the UK imposed on him following the invasion of Ukraine. He has started suing another European state on these grounds, claiming $16bn: equivalent to half of nation's yearly budget. Included in the legal team on his side? a prominent lawyer, married to the ex-UK leader.

International law scholars argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its financial support package arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over elected governments may be obstructing the money Ukraine urgently requires.

False Assurances and Growing Threats

Politicians promised that such things wouldn’t happen. In 2014, a government leader, championing the biggest and most dangerous of all these agreements, declared: “We’ve signed investment treaty upon trade deal and we have never seen a issue in the past.” A consultant on this topic described campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries needed to fear these lawsuits. Predictions that “once firms start to realise the power they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That prediction has come to pass. This year, oil and gas and resource corporations have filed a historic level of cases against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to halt climate breakdown. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP