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Can you perceive our political system functions? It could be something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. That's it. Yet, that’s how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, foreign corporations, or the oligarchs behind them, have the power to sue governments for the policies they pass, at offshore tribunals made up of corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these tribunals grant no opportunity to appeal or legal review. You or I cannot take a case to them, just as our government, including businesses headquartered in this country. Access is granted only to entities registered abroad.

If a tribunal determines that a law or policy might diminish the corporation’s projected profits, it may order damages of vast sums, running into billions.

These sums are based not on real financial harm but money the tribunal officials decide the company would perhaps have made. The government could be forced to rescind the measure. It becomes deterred from enacting future policies in that area, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being initiated, as companies learn from each other, and private equity fund legal actions for a share of a share of the awards. The result? Democratic sovereignty and democracy are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the choices enacted by elected bodies is that this stipulation has been inserted – without public consent, and frequently under a climate of total confidentiality – within international trade agreements.

A Specific Case: The UK Coal Mine

Twelve months ago, activists achieved a major legal triumph at the high court. The presiding officer ruled that plans to excavate the first deep coalmine in the UK for 30 years, in northwest England, had been unlawfully approved by the Conservative government, which had agreed to the questionable argument that the mine could have zero effect on our carbon budgets. The incoming administration subsequently revoked the licence the former government had issued. Currently, this legal outcome could be compromised by an secret arbitration panel reporting to only the corporations petitioning it.

During August, a company whose ultimate owners reside in the Cayman Islands filed a lawsuit against the UK government. The previous week a arbitration panel in the United States was established to consider the case.

The claimant is litigating against the UK for the profits it would have generated if the mine had been permitted to commence operations. The public has little idea how much this might be. What legal team is acting on its behalf challenging the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The government passes a law, the domestic court upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a elected official works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the mining lawsuit was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know scarce of the case so far, but it is highly possible that he will utilise the arbitration process to challenge the penalties the UK levied against him following the war in Ukraine. He has previously started suing Luxembourg with similar intent, demanding $16bn: an amount representing half state's yearly income. Part of the legal team representing him there? the wife of a former prime minister, married to the ex-UK leader.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states may be obstructing the funds Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that such things could not occur. Previously, a government leader, promoting the most significant and hazardous of all such treaties, told us: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An adviser on this matter accused critics of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations needed to fear ISDS claims. Warnings that “as corporations grasp the influence they now possess, they will shift their focus from the poorer states to the wealthy nations” were met with scepticism.

That warning has come to pass. Recently, energy and resource corporations have lodged a unprecedented number of suits against nations both wealthy and developing, challenging – similar to the Whitehaven project – official measures to stop environmental catastrophe. Companies have thus far won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP