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Can you perceive our system of government operates? Maybe similar to this. We elect MPs. They debate and pass bills. If a majority is secured, the bills become law. Statutes are enforced by the courts. That's it. Yet, that used to be how it used to work. No longer.

The Rise of Offshore Arbitration Panels

In the modern era, overseas companies, or the billionaires behind them, are able to litigate against nation states for the laws they pass, at offshore tribunals staffed by business advocates. These proceedings are held in secret. Unlike our courts, these panels provide no right of appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even enterprises operating from this country. The door is open solely for corporations registered abroad.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it has the power to grant compensation of vast sums, even billions.

This compensation represent not real financial harm but funds the tribunal officials determine the company would perhaps have made. The government might be compelled to rescind the measure. It will be deterred from enacting future policies along the same lines, worried about incurring a lawsuit.

A System Growing Exponentially

Record numbers of cases are being filed, as corporations take cues from each other, and hedge funds finance suits in return for a portion of the settlements. The result? National sovereignty and democracy are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the rulings enacted by legislatures is that this provision has been written – without democratic mandate, and typically amid conditions of total confidentiality – inside bilateral investment treaties.

A Specific Instance: The Cumbrian Coal Mine

Twelve months ago, activists secured a significant win at the High Court. The presiding officer ruled that schemes to dig the first deep coalmine in the UK for three decades, in northwest England, were wrongly permitted by the Conservative government, which had endorsed the questionable argument that the mine would have had no impact on our carbon budgets. The incoming administration subsequently revoked the consent the former government had issued. Now, this victory could be compromised by an offshore tribunal accountable to no one but the entities petitioning it.

During August, a company whose beneficial owners are located in the offshore financial centre filed a lawsuit challenging the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the money it might have made if the mine had been permitted to commence operations. Citizens have no idea how much this could amount to. Who is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The administration enacts a policy, the high court supports it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a member of our parliament works for its behalf.

A Sanctions Challenge

On the same day that the panel on the coalmine case was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case to date, but it is highly possible that he’ll use the arbitration process to contest the restrictions the UK imposed on him after the invasion of Ukraine. He has already started suing Luxembourg for this reason, demanding $16bn: equivalent to half of nation's yearly budget. Included in the counsel on his side? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s procrastination in using frozen oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over democratic administrations may be obstructing the money Ukraine critically depends on.

False Assurances and Mounting Costs

The public was told that these events wouldn’t happen. Previously, a former prime minister, championing the most significant and hazardous of all such treaties, stated: “Britain has agreed to trade agreement upon trade deal and there has not been a case in the past.” An expert on this topic described activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “when companies grasp the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with widespread derision.

That warning has now materialised. This year, fossil fuel and resource corporations have initiated a unprecedented number of suits against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Firms have so far won $114bn through ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP