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What is your reckon our system of government works? Perhaps similar to this. The public votes for MPs. They vote on bills. Should a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. However, that’s how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

Today, international firms, or the wealthy individuals who own them, are able to litigate against nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, including enterprises based in this country. Access is granted solely for businesses registered abroad.

If a tribunal determines that a legislative action may compromise the corporation’s anticipated profits, it can award compensation of vast sums, even billions.

These awards constitute not tangible damages but compensation the tribunal officials decide the company could potentially have made. The state could be forced to rescind the measure. It will be deterred from enacting future policies in that area, due to the risk of being sued.

A Process Spiralling Out of Control

Historically high figures of cases are being initiated, as companies take cues from each other, and hedge funds fund legal actions for a share of a share of the awards. The outcome? National sovereignty and popular rule are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the choices taken by legislatures is that this clause has been written – without public consent, and frequently under a climate of total confidentiality – inside bilateral investment treaties.

A Concrete Instance: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners won a great victory at the senior court. The justice ruled that schemes to open the first major coal mine in the UK for three decades, in Cumbria, were found to be wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine could have no impact on national carbon targets. The Labour government subsequently revoked the permission the Tories had granted. Today, this success could be compromised by an offshore tribunal reporting to only the companies bringing the case.

Last August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim challenging the UK government. The previous week a dispute settlement body in Washington DC was established to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had received permission to proceed. Citizens have no idea how much this could amount to. Which individual is representing it against the state? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The government passes a law, the national judiciary validates it, then a international entity contests it through an unaccountable offshore tribunal, and a elected official works for its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case at present, but it appears probable that he will utilise the ISDS mechanism to challenge the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has previously started suing Luxembourg on these grounds, seeking $16bn: equivalent to half of state's yearly income. Part of the counsel on his side? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in using frozen Russian assets as collateral for its financial support package arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that such things wouldn’t happen. In 2014, a government leader, promoting the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” An expert on this matter accused activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by such legal actions. Predictions that “when companies begin to understand the power they now possess, they will shift their focus from the poorer states to the strong ones” were met with general mockery.

That threat is now a reality. This year, energy and extraction companies have filed a historic level of cases against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – government attempts to halt environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP