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Can you understand our system of government functions? Maybe along the lines of this. We elect MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. Yet, that used to be how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Nowadays, international firms, along with the oligarchs behind them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals staffed by business advocates. These proceedings are held in secret. Unlike our courts, these panels grant no avenue for appeal or legal review. You or I are unable to file a case to them, just as our government, or even companies headquartered in this country. Access is granted exclusively to entities operating from foreign soil.

Should an arbitration panel finds that a legislative action might diminish the corporation’s projected profits, it can award financial penalties of vast sums, running into billions.

This compensation are based not on real financial harm but compensation the tribunal officials determine the company would perhaps have made. The administration may have to drop the legislation. It will be deterred from enacting future policies along the same lines, worried about being sued.

A System Growing Exponentially

Unprecedented levels of disputes are being filed, as firms take cues from each other, and hedge funds bankroll lawsuits in exchange for a portion of the takings. The result? Democratic sovereignty and democracy are now unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the choices made by elected bodies is that this provision has been inserted – without democratic mandate, and often in an atmosphere of profound opacity – inside international trade agreements.

A Specific Instance: The Cumbrian Coalmine

Last year, environmental campaigners won a great victory at the senior court. The judge ruled that plans to open the first deep coalmine in the UK for three decades, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine would have no impact on national carbon targets. The incoming administration subsequently revoked the consent the former government had granted. Now, this success is under threat by an secret arbitration panel accountable to exclusively the corporations filing the suit.

During August, a company whose beneficial owners are based in the offshore financial centre initiated proceedings versus the UK government. The previous week a tribunal in the United States was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to commence operations. Citizens have little idea how much this might be. Who is acting on its behalf in opposition to the British government? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary validates it, then a foreign company disputes it through an undemocratic private court, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the mining lawsuit was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows little of the case at present, but it is highly possible that he may employ the tribunal to challenge the penalties the UK enacted against him following the invasion of Ukraine. He has previously started suing Luxembourg for this reason, demanding $16bn: equivalent to half of government’s yearly budget. Included in the counsel on his side? the wife of a former prime minister, wife of the previous PM.

International law scholars argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over elected governments may be obstructing the finance Ukraine critically depends on.

False Assurances and Mounting Costs

The public was told that these scenarios were not possible. Years ago, a former prime minister, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” An expert on this matter accused critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms grasp the influence bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were met with general mockery.

That prediction has come to pass. Recently, energy and extraction companies have filed a historic level of cases against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – official measures to prevent global warming. Companies have so far won vast sums by using ISDS, of which fossil fuel companies have secured $84bn. That equates to the combined GDP