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What is your reckon our political system functions? Perhaps similar to this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Statutes is upheld by the courts. Simple as that. Yet, that was how it operated in the past. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals behind them, can sue elected administrations for the laws they pass, at secret arbitration panels made up of corporate lawyers. The cases are held behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. Access is granted solely for businesses registered abroad.

Should an arbitration panel finds that a legislative action might diminish the corporation’s anticipated profits, it has the power to grant compensation of vast sums, even billions.

These sums are based not on actual losses but compensation the panel members decide the company could potentially have made. The state may have to rescind the measure. It is deterred from introducing similar legislation along the same lines, for fear of facing litigation.

A Mechanism Running Rampant

Record numbers of disputes are being filed, as firms learn from each other, and investment funds fund legal actions for a share of a cut of the settlements. The result? Democratic sovereignty and democracy are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the decisions taken by elected bodies is that this clause has been written – without democratic mandate, and typically amid conditions of extreme secrecy – inside bilateral investment treaties.

A Specific Example: The Whitehaven Coalmine

Twelve months ago, activists won a great victory at the high court. The judge found that proposals to open the first new deep coal mine in the UK for three decades, in northwest England, had been wrongly permitted by the previous government, which had agreed to the questionable argument that the mine could have no impact on our carbon budgets. The incoming administration then withdrew the consent the former government had issued. Now, this legal outcome could be compromised by an offshore tribunal reporting to no one but the companies bringing the case.

During August, a firm whose final controllers reside in the offshore financial centre lodged a claim versus the UK government. Recently a arbitration panel in Washington DC was convened to adjudicate on it.

This firm is litigating against the UK for the profits it could have earned if the mine had been allowed to proceed. Citizens have no clear indication how much this might be. Who is representing it in opposition to the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a overseas corporation disputes it through an unaccountable private court, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the mining lawsuit was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case so far, but it appears probable that he will utilise the tribunal to fight the sanctions the UK enacted against him subsequent to the Russian aggression. He has started suing another European state for this reason, demanding sixteen billion dollars: equivalent to half of state's yearly income. Part of the counsel acting for him in that case? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars argue that the EU’s hesitation in using frozen state funds as security for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, secretive influence over elected governments may be obstructing the funds Ukraine critically depends on.

False Assurances and Mounting Threats

We were assured that these scenarios wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade deal upon trade deal and we have never seen a problem in the past.” A consultant on this issue described campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear such legal actions. Warnings that “once firms begin to understand the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning has now materialised. In the current period, energy and extraction companies have initiated a record number of cases against nations both wealthy and developing, opposing – similar to the UK mine – state efforts to stop global warming. Firms have to date won $114bn through ISDS, of which oil majors have been awarded the majority. That represents the combined GDP