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Can you understand our democratic process functions? Maybe similar to this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills become law. The law is upheld by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, international firms, and the oligarchs that control them, have the power to sue nation states for the policies they pass, at secret arbitration panels made up of commercial attorneys. The cases take place in secret. Unlike our courts, these tribunals grant no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, including companies based in this country. The door is open exclusively to businesses operating from foreign soil.

Should an arbitration panel finds that a government measure might diminish the corporation’s projected profits, it has the power to grant financial penalties of vast sums, running into billions.

These sums constitute not real financial harm but money the arbitrators decide the company could potentially have made. The state may have to drop the legislation. It becomes discouraged from passing future laws of a similar nature, worried about facing litigation.

A System Running Rampant

Historically high figures of cases are being initiated, as firms observe each other, and hedge funds fund legal actions in return for a cut of the awards. The outcome? National sovereignty and democracy are turning into prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the choices made by elected bodies is that this stipulation has been incorporated – absent public approval, and typically amid conditions of extreme secrecy – into trade treaties.

A Real-World Case: The Cumbrian Coalmine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The justice determined that schemes to excavate the first major coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the Conservative government, which had endorsed the questionable argument that the mine could have zero effect on our carbon budgets. The Labour government later cancelled the consent the former government had granted. Currently, this success could be compromised by an foreign court reporting to only the corporations petitioning it.

During August, a firm whose beneficial owners reside in the tax haven initiated proceedings against the UK government. Recently a arbitration panel in the US capital was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. Who is serving as its counsel in opposition to the British government? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a international entity contests it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

Concurrently that the panel on the coalmine case was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case to date, but it seems likely that he will utilise the tribunal to contest the restrictions the UK imposed on him after the Russian aggression. He has previously initiated proceedings against another European state for this reason, demanding sixteen billion dollars: equivalent to half of government’s annual revenue. Part of the counsel on his side? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts argue that the EU’s procrastination in utilising seized oligarchs' funds as security for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, unaccountable authority over sovereign states could be blocking the finance Ukraine desperately needs.

False Assurances and Mounting Costs

We were assured that such things wouldn’t happen. In 2014, a former prime minister, championing the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade deal upon trade deal and we have never seen a issue in the past.” An adviser on this topic described activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about ISDS claims. Warnings that “when companies start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning has now materialised. Recently, oil and gas and extraction companies have initiated a historic level of cases against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to prevent climate breakdown. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP