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How do you perceive our system of government operates? Maybe along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills become law. Statutes is upheld by the courts. End of story. However, that used to be how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Today, international firms, or the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals composed of business advocates. The cases are held away from public scrutiny. Differing from national judiciaries, these panels provide no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, and neither can our government, or even companies operating from this country. They are open solely for corporations registered abroad.

When a secret court finds that a legislative action could harm the corporation’s expected profits, it can award financial penalties of vast sums, potentially billions.

These awards represent not tangible damages but compensation the panel members decide the company might otherwise have made. The administration might be compelled to rescind the measure. It becomes deterred from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as companies take cues from each other, and investment funds finance suits in exchange for a cut of the settlements. The outcome? National sovereignty and democracy are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the decisions enacted by elected bodies is that this stipulation has been written – absent public approval, and often in an atmosphere of total confidentiality – within international trade agreements.

A Concrete Case: The UK Coalmine

Last year, activists won a great victory at the senior court. The judge found that schemes to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had agreed to the questionable argument that the mine could have no consequence on climate commitments. The new government subsequently revoked the permission the Tories had approved. Currently, this victory faces being overturned by an foreign court answering to exclusively the entities bringing the case.

Last August, a corporate entity whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. Recently a dispute settlement body in the United States was set up to consider the case.

This firm is litigating against the UK for the money it could have earned if the mine had been permitted to commence operations. We have little idea how much this sum represents. Which individual is acting on its behalf in opposition to the British government? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court validates it, then a international entity challenges it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the coalmine case was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case at present, but it seems likely that he will utilise the arbitration process to fight the penalties the UK enacted against him following the invasion of Ukraine. He has already started suing a small nation with similar intent, claiming $16bn: equivalent to half of state's yearly income. Included in the legal team acting for him in that case? Cherie Blair, married to the former British prime minister.

International law scholars contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations might be preventing the funds Ukraine urgently requires.

False Assurances and Growing Risks

We were assured that these scenarios could not occur. In 2014, a senior politician, promoting the largest and riskiest of all such treaties, declared: “The UK has signed investment treaty after trade deal and there has never been a problem in the past.” A consultant on this issue accused activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “when companies start to realise the power bestowed upon them, they will turn their attention from the poorer states to the strong ones” were met with widespread derision.

That warning is now a reality. In the current period, fossil fuel and mining firms have initiated a historic level of claims against nations across the economic spectrum, contesting – similar to the Whitehaven project – government attempts to halt climate breakdown. Corporations have to date won $114bn via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP