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How do you perceive our system of government operates? Perhaps something like this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Well, that’s how it once functioned. No longer.

The Advent of Shadow Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs behind them, can sue governments for the laws they pass, at private courts composed of corporate lawyers. These proceedings are conducted behind closed doors. Unlike our courts, these panels allow no opportunity to appeal or legal review. The general public are unable to file a case to them, nor can our government, or even companies headquartered in this country. The door is open exclusively to entities registered abroad.

When a secret court finds that a government measure may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These sums are based not on actual losses but money the tribunal officials determine the company might otherwise have made. The administration could be forced to drop the legislation. It will be discouraged from enacting future policies along the same lines, worried about being sued.

A System Running Rampant

Unprecedented levels of disputes are being filed, as companies learn from each other, and private equity bankroll lawsuits in exchange for a cut of the settlements. The consequence? National sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede domestic law and the rulings enacted by parliaments is that this clause has been inserted – absent public approval, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, a conservation group secured a significant win at the High Court. The justice found that plans to dig the first deep coalmine in the UK for a generation, in northwest England, had been wrongly permitted by the previous government, which had agreed to the questionable argument that the mine would have no impact on climate commitments. The new government subsequently revoked the permission the former government had granted. Today, this success is under threat by an offshore tribunal answering to only the entities bringing the case.

In August, a company whose ultimate owners are based in the tax haven initiated proceedings challenging the UK government. Recently a dispute settlement body in the United States was set up to hear it.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to go ahead. The public has little idea how much this might be. Which individual is serving as its counsel against the British government? A sitting MP, and former attorney-general in the Conservative government, the noted patriot the MP. The administration makes a decision, the national judiciary validates it, then a overseas corporation contests it through an secretive offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coalmine case was established, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are little of the case at present, but it appears probable that he’ll use the ISDS mechanism to contest the penalties the UK enacted against him subsequent to the war in Ukraine. He has previously started suing Luxembourg with similar intent, claiming $16bn: equivalent to half of state's annual revenue. Included in the legal team acting for him in that case? Cherie Blair, wife of the ex-UK leader.

Legal experts contend that the EU’s delay in utilising seized state funds as guarantee for its financial support package is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states may be obstructing the funds Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these scenarios were not possible. Years ago, a government leader, championing the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade deal upon trade deal and there has not been a problem in the past.” An adviser on this issue labelled campaigners of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that exclusively weaker states needed to fear these lawsuits. Warnings that “when companies begin to understand the authority they’ve been granted, they will turn their attention from the weak nations to the strong ones” were greeted by general mockery.

That threat has now materialised. In the current period, energy and resource corporations have lodged a record number of claims against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained the majority. That represents the combined GDP