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Can you reckon our system of government works? It could be something like this. The public votes for MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. Yet, that was how it used to work. Not anymore.

The Rise of Offshore Courts

Today, international firms, and the wealthy individuals behind them, have the power to sue elected administrations for the regulations they pass, at private courts made up of commercial attorneys. The cases take place away from public scrutiny. Differing from national judiciaries, these tribunals provide no avenue for appeal or judicial review. You or I are unable to file a case to them, nor can our government, or even businesses operating from this country. They are open only to entities based overseas.

Should an arbitration panel rules that a law or policy could harm the corporation’s projected profits, it may order compensation of hundreds of millions, even billions.

These awards constitute not actual losses but compensation the panel members determine the company would perhaps have made. The government may have to rescind the measure. It will be discouraged from introducing similar legislation of a similar nature, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of cases are being initiated, as firms learn from each other, and investment funds finance suits in return for a cut of the awards. The result? Sovereignty and popular rule are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede national legislation and the decisions made by elected bodies is that this clause has been incorporated – absent public approval, and often in conditions of profound opacity – inside international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, activists won a great victory at the high court. The justice found that proposals to open the first deep coalmine in the UK for three decades, in northwest England, had been unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine could have zero effect on climate commitments. The Labour government later cancelled the licence the previous administration had granted. Today, this victory is under threat by an foreign court answering to no one but the companies petitioning it.

In August, a corporate entity whose beneficial owners are located in the tax haven filed a lawsuit against the UK government. Recently a dispute settlement body in Washington DC was set up to adjudicate on it.

The claimant is litigating against the UK for the money it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this could amount to. Who is serving as its counsel against the UK administration? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The government passes a law, the high court validates it, then a foreign company contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Case

On the same day that the panel on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. Details are scarce of the case so far, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK levied against him subsequent to the war in Ukraine. He has already started suing another European state for this reason, seeking $16bn: half that state's annual revenue. Among the counsel representing him there? 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 financial support package is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the funds Ukraine desperately needs.

Misleading Claims and Mounting Costs

The public was told that such things wouldn’t happen. In 2014, a government leader, advocating for the largest and riskiest of all such treaties, stated: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An adviser on this topic described campaigners of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations needed to fear such legal actions. Cautionary notes that “when companies start to realise the influence they now possess, they will turn their attention from the weak nations to the strong ones” were dismissed with general mockery.

That prediction has now materialised. In the current period, fossil fuel and extraction companies have initiated a record number of suits against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to prevent global warming. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained $84bn. That represents the combined GDP