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How do you reckon our political system works? Perhaps something like this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills become law. Statutes is upheld by the courts. End of story. Well, that used to be how it used to work. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, overseas companies, or the oligarchs behind them, can sue nation states for the regulations they pass, at secret arbitration panels made up of business advocates. The cases take place behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even companies operating from this country. The door is open only to businesses based overseas.

When a secret court determines that a legislative action may compromise the corporation’s projected profits, it may order damages of hundreds of millions of pounds, potentially billions.

These awards are based not on tangible damages but funds the arbitrators decide the company might otherwise have made. The government may have to abandon its policy. It will be discouraged from passing future laws along the same lines, due to the risk of being sued.

A Process Running Rampant

Record numbers of legal actions are being filed, as companies take cues from each other, and hedge funds bankroll lawsuits for a share of a share of the takings. The consequence? National sovereignty and popular rule are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings enacted by legislatures is that this provision has been written – absent public approval, and often in a climate of profound opacity – within bilateral investment treaties.

A Concrete Instance: The UK Coalmine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The justice found that plans to open the first deep coalmine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have no impact on our carbon budgets. The new government then withdrew the licence the Tories had granted. Today, this victory faces being overturned by an secret arbitration panel accountable to only the corporations bringing the case.

In August, a corporate entity whose beneficial owners are located in the tax haven filed a lawsuit against the UK government. Last week a arbitration panel in Washington DC was convened to hear it.

The company is suing the UK for the money it could have earned if the mine had received permission to proceed. Citizens have little idea how much this might be. Which individual is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary upholds it, then a international entity disputes it through an secretive offshore tribunal, and a elected official acts on its behalf.

The Russian Challenge

Concurrently that the panel on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case at present, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has previously initiated proceedings against another European state on these grounds, seeking sixteen billion dollars: an amount representing half state's annual revenue. Included in the counsel on his side? the wife of a former prime minister, spouse of the previous PM.

Legal experts argue that the EU’s procrastination in leveraging immobilised state funds as collateral for its loan to Ukraine arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine desperately needs.

False Assurances and Growing Costs

We were assured that such things could not occur. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An expert on this issue labelled critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states had to worry about these lawsuits. Warnings that “when companies grasp the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with general mockery.

That prediction is now a reality. Recently, energy and resource corporations have lodged a historic level of cases against nations rich and poor, challenging – as in the case of the Whitehaven project – state efforts to prevent climate breakdown. Corporations have so far won $114bn by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP