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How do you perceive our political system works? Perhaps similar to this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills pass into law. Legislation is maintained by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, and the oligarchs behind them, are able to litigate against nation states for the policies they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held away from public scrutiny. Unlike our courts, these tribunals allow no avenue for appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even enterprises based in this country. Access is granted only to businesses registered abroad.

Should an arbitration panel finds that a government measure could harm the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, even billions.

These sums constitute not real financial harm but compensation the arbitrators conclude the company could potentially have made. The state could be forced to rescind the measure. It will be discouraged from introducing similar legislation in that area, worried about facing litigation.

A Process Running Rampant

Record numbers of legal actions are being brought, as corporations take cues from each other, and investment funds bankroll lawsuits in exchange for a share of the takings. The consequence? Sovereignty and democratic governance are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede a country's own laws and the rulings taken by legislatures is that this stipulation has been written – absent public approval, and frequently under an atmosphere of total confidentiality – into international trade agreements.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The justice ruled that proposals to excavate the first major coal mine in the UK for a generation, in Cumbria, were illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine could have no consequence on climate commitments. The new government subsequently revoked the permission the former government had approved. Currently, this victory could be compromised by an foreign court accountable to exclusively the corporations filing the suit.

During August, a company whose final controllers are located in the Cayman Islands lodged a claim challenging the UK government. Recently a arbitration panel in the US capital was established to adjudicate on it.

The company is seeking compensation from the UK for the profits it might have made if the mine had been allowed to go ahead. We have no clear indication how much this sum represents. Who is representing it against the British government? An elected representative, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a international entity challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the mining lawsuit was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case so far, but it appears probable that he’ll use the arbitration process to contest the restrictions the UK imposed on him following the war in Ukraine. He has initiated proceedings against a small nation on these grounds, seeking $16bn: an amount representing half state's annual revenue. Included in the legal team on his side? Cherie Blair, spouse of the previous PM.

Trade specialists believe that the EU’s procrastination in using frozen state funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over sovereign states may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Growing Risks

Politicians promised that these events wouldn’t happen. Previously, a former prime minister, advocating for the most significant and hazardous of all investment pacts, declared: “The UK has signed investment treaty after trade deal and there has never been a problem in the past.” An expert on this issue accused activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries should be concerned by such legal actions. Predictions that “as corporations start to realise the authority they’ve been granted, they will shift their focus from the poorer states to the developed economies” were dismissed with widespread derision.

That prediction is now a reality. Recently, energy and extraction companies have initiated a unprecedented number of suits against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – state efforts to prevent global warming. Companies have so far won vast sums through ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP