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Can you reckon our political system operates? It could be something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills pass into law. Legislation are enforced by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, along with the billionaires who own them, can sue elected administrations for the regulations they pass, at private courts made up of corporate lawyers. The cases are held in secret. Unlike our courts, these panels allow no right of appeal or judicial review. You or I cannot take a case to them, nor can our government, or even companies operating from this country. They are open only to businesses registered abroad.

Should an arbitration panel determines that a legislative action might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

These sums represent not tangible damages but compensation the arbitrators determine the company could potentially have made. The administration might be compelled to rescind the measure. It will be deterred from introducing similar legislation along the same lines, for fear of being sued.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being brought, as corporations observe each other, and private equity fund legal actions in exchange for a portion of the awards. The outcome? Sovereignty and democratic governance are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the decisions enacted by parliaments is that this stipulation has been incorporated – without public consent, and often in a climate of total confidentiality – inside international trade agreements.

A Concrete Example: The Whitehaven Coal Mine

A year ago, environmental campaigners secured a significant win at the high court. The presiding officer ruled that schemes to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have no consequence on our carbon budgets. The Labour government then withdrew the consent the previous administration had issued. Today, this victory could be compromised by an foreign court accountable to only the companies bringing the case.

In August, a corporate entity whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. The previous week a dispute settlement body in the United States was set up to adjudicate on it.

The claimant is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. The public has no clear indication how much this could amount to. Who is acting on its behalf against the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a foreign company disputes it through an unaccountable private court, and a elected official acts on its behalf.

The Russian Case

On the same day that the tribunal on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case at present, but it appears probable that he’ll use the tribunal to fight the restrictions the UK levied against him after the war in Ukraine. He has already started suing a small nation with similar intent, demanding a colossal sum: half that government’s yearly income. Included in the lawyers representing him there? a prominent lawyer, married to the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over sovereign states might be preventing the funds Ukraine desperately needs.

Empty Promises and Mounting Threats

We were assured that such things wouldn’t happen. Previously, a government leader, promoting the largest and riskiest of all such treaties, told us: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this matter described critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “when companies grasp the authority they now possess, they will shift their focus from the weak nations to the developed economies” were dismissed with scepticism.

That threat has come to pass. In the current period, oil and gas and resource corporations have lodged a historic level of cases against nations both wealthy and developing, contesting – as in the case of the UK mine – official measures to halt climate breakdown. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP