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What is your reckon our system of government functions? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is achieved, the bills become law. Statutes is maintained by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, international firms, along with the wealthy individuals that control them, are able to litigate against governments for the regulations they pass, at offshore tribunals composed of commercial attorneys. Such disputes take place behind closed doors. Unlike our courts, these bodies provide no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, including enterprises operating from this country. They are open only to entities based overseas.

Should an arbitration panel determines that a legislative action might diminish the corporation’s anticipated profits, it can award damages of hundreds of millions, running into billions.

This compensation are based not on tangible damages but compensation the arbitrators decide the company could potentially have made. The administration may have to rescind the measure. It will be hesitant to passing future laws along the same lines, for fear of being sued.

A System Running Rampant

Unprecedented levels of disputes are being brought, as companies learn from each other, and investment funds bankroll lawsuits for a share of a portion of the takings. The result? National sovereignty and popular rule are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the choices enacted by legislatures is that this clause has been written – without democratic mandate, and typically amid conditions of extreme secrecy – into international trade agreements.

A Concrete Instance: The UK Coalmine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The justice determined that proposals to open the first major coal mine in the UK for a generation, in Cumbria, had been wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have had zero effect on national carbon targets. The incoming administration subsequently revoked the permission the Tories had approved. Now, this legal outcome is under threat by an offshore tribunal reporting to only the corporations bringing the case.

Last August, a company whose beneficial owners are based in the Cayman Islands lodged a claim versus the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

The company is suing the UK for the profits it would have generated if the mine had been permitted to proceed. Citizens have no clear indication how much this could amount to. Who is representing it against the British government? A sitting MP, and ex-law officer in the outgoing administration, that great patriot the MP. The administration passes a law, the national judiciary validates it, then a overseas corporation challenges it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

The Russian Challenge

On the same day that the tribunal on the mining lawsuit was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case at present, but it appears probable that he may employ the tribunal to contest the sanctions the UK levied against him following the Russian aggression. He has previously filed a claim against a small nation with similar intent, seeking sixteen billion dollars: an amount representing half nation's yearly income. Part of the lawyers representing him there? a prominent lawyer, wife of the previous PM.

International law scholars believe that the EU’s hesitation in using frozen oligarchs' funds as collateral for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over elected governments could be blocking the finance Ukraine critically depends on.

Empty Promises and Escalating Risks

The public was told that these events wouldn’t happen. Previously, a senior politician, promoting the largest and riskiest of all these agreements, stated: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” An expert on this matter accused critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries needed to fear such legal actions. Cautionary notes that “as corporations start to realise the authority they now possess, they will redirect their efforts from the poorer states to the developed economies” were greeted by scepticism.

That threat has now materialised. In the current period, fossil fuel and resource corporations have lodged a record number of cases against nations rich and poor, opposing – similar to the Whitehaven project – official measures to prevent global warming. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP