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What is your understand our system of government operates? It could be along the lines of this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. The law is maintained by the courts. End of story. Well, that used to be how it once functioned. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, and the wealthy individuals behind them, can sue governments for the laws they pass, at offshore tribunals made up of business advocates. The cases are conducted away from public scrutiny. In contrast to domestic courts, these panels provide no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, including enterprises headquartered in this country. They are open exclusively to entities based overseas.

When a secret court rules that a government measure could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions, running into billions.

These awards are based not on real financial harm but funds the arbitrators conclude the company could potentially have made. The state may have to rescind the measure. It will be deterred from enacting future policies along the same lines, due to the risk of being sued.

A System Running Rampant

Unprecedented levels of legal actions are being initiated, as corporations learn from each other, and hedge funds bankroll lawsuits in return for a share of the takings. The result? National sovereignty and democracy are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the rulings enacted by parliaments is that this stipulation has been written – without public consent, and often in a climate of total confidentiality – inside international trade agreements.

A Real-World Example: The Cumbrian Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The justice found that proposals to dig the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine could have no impact on national carbon targets. The new government subsequently revoked the permission the Tories had issued. Currently, this victory is under threat by an secret arbitration panel reporting to only the entities petitioning it.

During August, a corporate entity whose beneficial owners are based in the Cayman Islands lodged a claim challenging the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been permitted to proceed. Citizens have no clear indication how much this could amount to. Who is serving as its counsel challenging the UK administration? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The administration enacts a policy, the national judiciary supports it, then a foreign company disputes it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Lawsuit

Simultaneously that the court on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows scarce of the case at present, but it is highly possible that he will utilise the tribunal to fight the penalties the UK imposed on him subsequent to the war in Ukraine. He has initiated proceedings against another European state on these grounds, seeking a colossal sum: an amount representing half state's yearly budget. Included in the counsel representing him there? the wife of a former prime minister, wife of the former British prime minister.

International law scholars believe that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its financial support package stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over democratic administrations may be obstructing the money Ukraine desperately needs.

False Assurances and Growing Risks

The public was told that these events could not occur. In 2014, a former prime minister, championing the largest and riskiest of all these agreements, stated: “Britain has agreed to trade agreement upon trade deal and we have never seen a issue in the past.” An expert on this issue accused critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “as corporations start to realise the influence they now possess, they will shift their focus from the poorer states to the wealthy nations” were greeted by widespread derision.

That threat has now materialised. Recently, fossil fuel and mining firms have initiated a historic level of claims against nations rich and poor, contesting – as in the case of the UK mine – government attempts to stop environmental catastrophe. Companies have to date won $114bn via ISDS, of which oil majors have been awarded the majority. That is equivalent to the combined GDP