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How do you perceive our political system functions? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. The law is upheld by the courts. Simple as that. Well, that was how it used to work. Those days are over.

The Emergence of Offshore Arbitration Panels

Today, overseas companies, or the wealthy individuals that control them, have the power to sue governments for the regulations they pass, at private courts composed of business advocates. Such disputes are conducted in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even companies operating from this country. The door is open exclusively to businesses based overseas.

If a tribunal rules that a law or policy might diminish the corporation’s anticipated 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 arbitrators decide the company would perhaps have made. The administration might be compelled to rescind the measure. It is deterred from enacting future policies along the same lines, worried about facing litigation.

A System Running Rampant

Historically high figures of disputes are being initiated, as corporations learn from each other, and hedge funds finance suits in exchange for a share of the awards. The outcome? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override domestic law and the rulings made by parliaments is that this provision has been written – absent public approval, and often in an atmosphere of extreme secrecy – inside trade treaties.

A Concrete Example: The Cumbrian Coal Mine

Last year, activists secured a significant win at the high court. The judge found that schemes to dig the first new deep coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine could have no consequence on climate commitments. The new government then withdrew the permission the previous administration had approved. Now, this legal outcome faces being overturned by an foreign court answering to only the companies petitioning it.

During August, a company whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. Last week a dispute settlement body in the United States was convened to consider the case.

The claimant is suing the UK for the revenue it could have earned if the mine had been permitted to go ahead. The public has no idea how much this sum represents. Who is representing it challenging the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the domestic court validates it, then a foreign company challenges it through an secretive arbitration panel, and a elected official represents its behalf.

An Oligarch's Challenge

Concurrently that the tribunal on the mining lawsuit was established, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it appears probable that he’ll use the tribunal to contest the sanctions the UK levied against him following the war in Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, claiming $16bn: an amount representing half nation's yearly income. Included in the counsel acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Trade specialists argue that the EU’s delay in using frozen oligarchs' funds as security for its financial support package stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over elected governments might be preventing the money Ukraine urgently requires.

Empty Promises and Escalating Risks

We were assured that such things wouldn’t happen. Previously, a senior politician, advocating for the largest and riskiest of all such treaties, stated: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” An expert on this topic described critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “once firms start to realise the influence they now possess, they will shift their focus from the weak nations to the developed economies” were dismissed with general mockery.

That threat is now a reality. This year, energy and extraction companies have filed a historic level of claims against nations both wealthy and developing, challenging – similar to the Cumbrian coalmine – government attempts to prevent climate breakdown. Companies have thus far won vast sums by using ISDS, of which fossil fuel companies have secured $84bn. That is equivalent to the combined GDP