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How do you understand our system of government functions? Maybe something like this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. The law is upheld by the courts. Simple as that. Well, that used to be how it operated in the past. No longer.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, or the oligarchs behind them, can sue elected administrations for the policies they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels provide no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, including businesses based in this country. Access is granted exclusively to corporations operating from foreign soil.

If a tribunal rules that a legislative action could harm the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

This compensation are based not on tangible damages but money the arbitrators decide the company could potentially have made. The government may have to drop the legislation. It will be hesitant to introducing similar legislation of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being filed, as firms take cues from each other, and investment funds fund legal actions in exchange for a share of the awards. The outcome? National sovereignty and popular rule are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices made by legislatures is that this stipulation has been incorporated – without public consent, and typically amid an atmosphere of total confidentiality – inside international trade agreements.

A Specific Example: The Whitehaven Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The justice found that schemes to excavate the first major coal mine in the UK for three decades, in northwest England, were unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine would have had zero effect on our carbon budgets. The Labour government later cancelled the licence the previous administration had issued. Today, this success faces being overturned by an foreign court answering to exclusively the entities bringing the case.

Last August, a firm whose ultimate owners are located in the offshore financial centre initiated proceedings against the UK government. Recently a tribunal in Washington DC was convened to consider the case.

The company is litigating against the UK for the revenue it might have made if the mine had been permitted to commence operations. We have no idea how much this could amount to. Which individual is representing it challenging the state? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the domestic court upholds it, then a international entity disputes it through an secretive offshore tribunal, and a member of our parliament represents its behalf.

The Russian Lawsuit

Concurrently that the panel on the coalmine case was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case to date, but it seems likely that he may employ the arbitration process to challenge the sanctions the UK levied against him subsequent to the Russian aggression. He has already started suing Luxembourg on these grounds, claiming $16bn: an amount representing half government’s yearly income. Included in the counsel representing him there? the wife of a former prime minister, married to the previous PM.

Legal experts contend that the EU’s procrastination in utilising seized Russian assets as security 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 remarkable, unaccountable authority over elected governments could be blocking the finance Ukraine critically depends on.

Empty Promises and Growing Threats

Politicians promised that such things were not possible. Years ago, a former prime minister, championing the most significant and hazardous of all these agreements, declared: “The UK has signed investment treaty upon trade deal and we have never seen a issue in the past.” An adviser on this issue labelled activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that only poorer nations should be concerned by these lawsuits. Warnings that “once firms start to realise the influence bestowed upon them, they will shift their focus from the poorer states to the strong ones” were dismissed with general mockery.

That prediction is now a reality. This year, oil and gas and mining firms have lodged a historic level of claims against nations both wealthy and developing, contesting – like the example of the UK mine – state efforts to stop environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP