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What is your reckon our political system works? It could be similar to this. We elect MPs. They legislate on bills. If a majority is achieved, the bills pass into law. Statutes is upheld by the courts. Simple as that. Well, that was how it used to work. Not anymore.

The Rise of Offshore Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals who own them, can sue nation states for the regulations they pass, at secret arbitration panels staffed by business advocates. Such disputes are conducted behind closed doors. Unlike our courts, these tribunals provide no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, including enterprises based in this country. Access is granted exclusively to businesses registered abroad.

Should an arbitration panel rules that a law or policy might diminish the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These sums constitute not actual losses but compensation the tribunal officials conclude the company might otherwise have made. The administration could be forced to abandon its policy. It will be hesitant to enacting future policies in that area, worried about facing litigation.

A System Running Rampant

Record numbers of cases are being filed, as companies take cues from each other, and hedge funds fund legal actions for a share of a share of the awards. The consequence? Democratic sovereignty and democratic governance are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the decisions enacted by parliaments is that this clause has been incorporated – absent public approval, and often in conditions of profound opacity – into bilateral investment treaties.

A Concrete Instance: The UK Coalmine

A year ago, activists achieved a major legal triumph at the high court. The judge ruled that plans to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had endorsed the extraordinary assertion that the mine would have had no consequence on climate commitments. The new government then withdrew the consent the Tories had issued. Today, this success is under threat by an foreign court answering to no one but the corporations filing the suit.

In August, a company whose beneficial owners are based in the tax haven initiated proceedings against the UK government. Last week a dispute settlement body in the United States was established to consider the case.

The company is suing the UK for the revenue it might have made if the mine had been permitted to proceed. We have no idea how much this sum represents. Who is serving as its counsel challenging the UK administration? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state passes a law, the national judiciary validates it, then a overseas corporation contests it through an undemocratic private court, and a elected official works for its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case to date, but it seems likely that he’ll use the arbitration process to challenge the restrictions the UK levied against him after the war in Ukraine. He has already initiated proceedings against another European state for this reason, demanding $16bn: half that state's annual revenue. Among the counsel acting for him in that case? Cherie Blair, wife of the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, unaccountable authority over democratic administrations may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Growing Threats

The public was told that these scenarios were not possible. In 2014, a government leader, advocating for the biggest and most dangerous of all investment pacts, told us: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” An expert on this topic labelled activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations had to worry about such legal actions. Warnings that “when companies start to realise the power they now possess, they will redirect their efforts from the weak nations to the developed economies” were dismissed with general mockery.

That threat has now materialised. Recently, energy and mining firms have lodged a historic level of cases against nations rich and poor, contesting – like the example of the UK mine – government attempts to prevent environmental catastrophe. Firms have thus far won $114bn by using ISDS, of which oil majors have secured the majority. That represents the combined GDP