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How do you perceive our political system functions? Perhaps something like this. The public votes for MPs. They debate and pass bills. When a majority is achieved, the bills become law. Statutes is maintained by the courts. End of story. Yet, that’s how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Nowadays, overseas companies, and the wealthy individuals that control them, are able to litigate against nation states for the policies they pass, at offshore tribunals staffed by corporate lawyers. The cases are held in secret. In contrast to domestic courts, these bodies provide no avenue for appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, including companies based in this country. They are open only to corporations based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it may order damages of hundreds of millions, even billions.

This compensation are based not on actual losses but funds the panel members decide the company would perhaps have made. The government might be compelled to rescind the measure. It will be discouraged from passing future laws of a similar nature, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of legal actions are being filed, as firms learn from each other, and hedge funds bankroll lawsuits for a share of a cut of the takings. The result? National sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices taken by elected bodies is that this provision has been inserted – absent public approval, and frequently under an atmosphere of total confidentiality – within trade treaties.

A Specific Example: The Cumbrian Coal Mine

A year ago, a conservation group won a great victory at the high court. The justice found that schemes to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were found to be unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have no consequence on national carbon targets. The Labour government then withdrew the licence the former government had approved. Now, this legal outcome could be compromised by an foreign court answering to exclusively the entities bringing the case.

Last August, a corporate entity whose final controllers reside in the offshore financial centre initiated proceedings versus the UK government. Last week a dispute settlement body in the US capital was set up to hear it.

The company is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. We have little idea how much this might be. Which individual is serving as its counsel challenging the UK administration? A sitting MP, and former attorney-general in the Conservative government, that great patriot Sir Geoffrey Cox. The state makes a decision, the high court validates it, then a foreign company disputes it through an secretive arbitration panel, and a sitting MP represents its behalf.

The Russian Challenge

Simultaneously that the panel on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case to date, but it seems likely that he’ll use the arbitration process to contest the restrictions the UK levied against him after the invasion of Ukraine. He has already filed a claim against Luxembourg on these grounds, claiming a colossal sum: an amount representing half nation's yearly budget. Part of the counsel acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments may be obstructing the finance Ukraine critically depends on.

False Assurances and Mounting Costs

The public was told that such things could not occur. In 2014, a senior politician, advocating for the most significant and hazardous of all such treaties, stated: “We’ve signed trade agreement after trade deal and there has not been a problem in the past.” A consultant on this matter accused critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries had to worry about such legal actions. Predictions that “once firms grasp the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with general mockery.

That warning has now materialised. In the current period, energy and mining firms have initiated a unprecedented number of cases against nations both wealthy and developing, opposing – like the example of the UK mine – state efforts to prevent climate breakdown. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP