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What is your reckon our political system functions? Maybe something like this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, and the wealthy individuals behind them, can sue nation states for the policies they pass, at offshore tribunals made up of corporate lawyers. These proceedings take place away from public scrutiny. Differing from national judiciaries, these bodies provide no avenue for appeal or oversight by judges. The general public cannot take a case to them, nor can our government, or even enterprises headquartered in this country. The door is open exclusively to corporations registered abroad.

When a secret court finds that a law or policy may compromise the corporation’s projected profits, it can award damages of hundreds of millions, running into billions.

These awards constitute not real financial harm but money the arbitrators decide the company would perhaps have made. The state may have to abandon its policy. It will be discouraged from passing future laws along the same lines, for fear of facing litigation.

A Process Running Rampant

Record numbers of cases are being filed, as companies observe each other, and hedge funds finance suits for a share of a share of the settlements. The result? Sovereignty and democracy are now too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices made by elected bodies is that this clause has been inserted – absent public approval, and typically amid a climate of profound opacity – inside international trade agreements.

A Specific Instance: The Cumbrian Coalmine

A year ago, a conservation group won a great victory at the high court. The justice determined that proposals to dig the first major coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the bizarre claim that the mine could have zero effect on national carbon targets. The new government subsequently revoked the permission the previous administration had granted. Today, this victory could be compromised by an foreign court reporting to no one but the companies filing the suit.

During August, a firm whose final controllers reside in the tax haven lodged a claim against the UK government. Last week a arbitration panel in Washington DC was set up to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to proceed. We have no idea how much this might be. Who is acting on its behalf in opposition to the British government? A member of parliament, and ex-law officer in the outgoing administration, that great patriot the MP. The state enacts a policy, the domestic court supports it, then a international entity contests it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the court on the coal mine dispute was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the penalties the UK enacted against him subsequent to the war in Ukraine. He has filed a claim against a small nation for this reason, demanding $16bn: an amount representing half government’s annual revenue. Among the legal team acting for him in that case? Cherie Blair, married to the previous PM.

Legal experts argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations could be blocking the money Ukraine critically depends on.

False Assurances and Mounting Costs

The public was told that these scenarios wouldn’t happen. Previously, a senior politician, championing the largest and riskiest of all such treaties, stated: “Britain has agreed to investment treaty upon trade deal and there has never been a case in the past.” An expert on this matter described campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations had to worry about such legal actions. Cautionary notes that “once firms begin to understand the influence bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That warning is now a reality. This year, energy and extraction companies have lodged a unprecedented number of suits against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP