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Can you understand our system of government works? It could be something like this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Legislation are enforced by the courts. That's it. Yet, that’s how it operated in the past. Not anymore.

The Rise of Offshore Arbitration Panels

Today, international firms, along with the billionaires who own them, are able to litigate against governments for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings are conducted away from public scrutiny. Unlike our courts, these panels grant no avenue for appeal or legal review. You or I are unable to file a case to them, nor can our government, or even enterprises operating from this country. The door is open only to corporations based overseas.

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

This compensation constitute not real financial harm but compensation the arbitrators decide the company could potentially have made. The state may have to abandon its policy. It will be discouraged from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms observe each other, and investment funds finance suits for a share of a portion of the takings. The consequence? Democratic sovereignty and popular rule are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override domestic law and the choices taken by parliaments is that this clause has been incorporated – without public consent, and frequently under conditions of total confidentiality – within bilateral investment treaties.

A Specific Case: The UK Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The justice found that plans to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had agreed to the questionable argument that the mine would have no impact on national carbon targets. The Labour government later cancelled the permission the previous administration had issued. Today, this victory could be compromised by an offshore tribunal reporting to no one but the corporations filing the suit.

Last August, a corporate entity whose ultimate owners are located in the offshore financial centre lodged a claim against the UK government. Recently a arbitration panel in the United States was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been allowed to commence operations. Citizens have little idea how much this might be. What legal team is acting on its behalf challenging the state? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot the MP. The state enacts a policy, the domestic court upholds it, then a international entity disputes it through an unaccountable private court, and a elected official works for its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows nothing of the case so far, but it seems likely that he may employ the ISDS mechanism to challenge the restrictions the UK imposed on him after the invasion of Ukraine. He has already filed a claim against Luxembourg on these grounds, claiming sixteen billion dollars: equivalent to half of government’s yearly budget. Part of the lawyers representing him there? Cherie Blair, married to the former British prime minister.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments could be blocking the money Ukraine desperately needs.

False Assurances and Escalating Costs

Politicians promised that these scenarios could not occur. Years ago, a government leader, promoting the largest and riskiest of all these agreements, declared: “Britain has agreed to investment treaty upon trade deal and there has not been a problem in the past.” An expert on this topic described campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear ISDS claims. Predictions that “once firms start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by scepticism.

That threat has now materialised. In the current period, fossil fuel and extraction companies have filed a unprecedented number of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – state efforts to stop global warming. Corporations have to date won $114bn through ISDS, of which oil majors have been awarded the majority. That equates to the combined GDP