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Can you perceive our political system works? Perhaps along the lines of this. We elect MPs. They vote on bills. When a majority is secured, the bills are enacted as law. The law is upheld by the courts. Simple as that. Well, that’s how it operated in the past. No longer.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, or the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals composed of commercial attorneys. These proceedings are conducted in secret. Differing from national judiciaries, these panels grant no avenue for appeal or oversight by judges. The general public are unable to file a case to them, just as our government, including enterprises operating from this country. Access is granted exclusively to entities operating from foreign soil.

If a tribunal finds that a legislative action might diminish the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, even billions.

This compensation constitute not real financial harm but funds the arbitrators decide the company might otherwise have made. The state could be forced to drop the legislation. It becomes deterred from introducing similar legislation in that area, due to the risk of facing litigation.

A System Running Rampant

Unprecedented levels of cases are being initiated, as firms take cues from each other, and private equity bankroll lawsuits in exchange for a portion of the awards. The result? Democratic sovereignty and democratic governance are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the choices taken by elected bodies is that this provision has been incorporated – without public consent, and typically amid conditions of total confidentiality – within trade treaties.

A Specific Instance: The Whitehaven Coal Mine

A year ago, activists achieved a major legal triumph at the high court. The presiding officer ruled that proposals to excavate the first new deep coal mine in the UK for a generation, in northwest England, were found to be wrongly permitted by the Conservative government, which had endorsed the bizarre claim that the mine could have no impact on national carbon targets. The incoming administration later cancelled the licence the previous administration had granted. Today, this legal outcome is under threat by an foreign court reporting to no one but the companies bringing the case.

During August, a firm whose beneficial owners reside in the Cayman Islands lodged a claim challenging the UK government. Recently a arbitration panel in the United States was convened to adjudicate on it.

The claimant is suing the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have no idea how much this might be. Which individual is serving as its counsel against the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the high court supports it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a elected official works for its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the coalmine case was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. We know little of the case so far, but it appears probable that he may employ the ISDS mechanism to contest the restrictions the UK imposed on him subsequent to the Russian aggression. He has already initiated proceedings against Luxembourg on these grounds, demanding sixteen billion dollars: an amount representing half state's yearly budget. Part of the lawyers on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the money Ukraine urgently requires.

Empty Promises and Mounting Threats

Politicians promised that these scenarios could not occur. Years ago, a former prime minister, advocating for the biggest and most dangerous of all such treaties, told us: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” A consultant on this matter labelled campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “as corporations begin to understand the authority they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were greeted by scepticism.

That prediction has now materialised. Recently, fossil fuel and mining firms have initiated a unprecedented number of claims against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – state efforts to halt climate breakdown. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP