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How do you perceive our system of government functions? Perhaps along the lines of this. The public votes for MPs. They vote on bills. If a majority is obtained, the bills become law. Statutes is maintained by the courts. That's it. However, that was how it used to work. Not anymore.

The Rise of Secret Arbitration Panels

Today, overseas companies, or the billionaires behind them, can sue nation states for the regulations they pass, at private courts composed of commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these bodies grant no right of appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even businesses based in this country. Access is granted only to businesses registered abroad.

If a tribunal determines that a government measure may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions, even billions.

These sums represent not real financial harm but funds the tribunal officials 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 incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of disputes are being initiated, as firms take cues from each other, and investment funds bankroll lawsuits in exchange for a cut of the takings. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the choices enacted by elected bodies is that this stipulation has been incorporated – without public consent, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Specific Example: The UK Coalmine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The presiding officer determined that schemes to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The new government then withdrew the permission the Tories had granted. Now, this success could be compromised by an secret arbitration panel reporting to no one but the entities filing the suit.

In August, a firm whose ultimate owners reside in the offshore financial centre lodged a claim against the UK government. Last week a dispute settlement body in the United States was set up to consider the case.

The claimant is suing the UK for the revenue it might have made if the mine had received permission to go ahead. The public has no idea how much this might be. Which individual is representing it in opposition to the British government? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The state enacts a policy, the high court validates it, then a foreign company disputes it through an undemocratic offshore tribunal, and a elected official represents its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the coal mine dispute was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case so far, but it is highly possible that he may employ the arbitration process to contest the penalties the UK levied against him subsequent to the Russian aggression. He has already initiated proceedings against another European state for this reason, claiming a colossal sum: half that state's annual revenue. Among the legal team on his side? the wife of a former prime minister, wife of the previous PM.

International law scholars believe that the EU’s delay in using frozen Russian assets as security for its financial support package stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments may be obstructing the finance Ukraine critically depends on.

False Assurances and Mounting Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a former prime minister, advocating for the most significant and hazardous of all these agreements, told us: “The UK has signed trade deal upon trade deal and there has never been a case in the past.” An adviser on this matter accused critics of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations start to realise the influence they now possess, they will shift their focus from the vulnerable countries to the strong ones” were met with general mockery.

That prediction is now a reality. This year, oil and gas and extraction companies have initiated a unprecedented number of claims against nations rich and poor, challenging – like the example of the UK mine – government attempts to halt environmental catastrophe. Companies have so far won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP