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How do you perceive our political system operates? It could be something like this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills become law. The law are enforced by the courts. Simple as that. Yet, that used to be how it used to work. No longer.

The Rise of Offshore Tribunals

Today, foreign corporations, and the wealthy individuals behind them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels composed of commercial attorneys. The cases are held in secret. Unlike our courts, these bodies provide no avenue for appeal or legal review. You or I are unable to file a case to them, nor can our government, or even companies based in this country. Access is granted solely for corporations operating from foreign soil.

If a tribunal determines that a legislative action could harm the corporation’s anticipated profits, it can award damages of hundreds of millions, running into billions.

These awards represent not tangible damages but funds the panel members decide the company would perhaps have made. The administration may have to rescind the measure. It is discouraged from introducing similar legislation in that area, for fear of facing litigation.

A System Spiralling Out of Control

Record numbers of disputes are being brought, as companies learn from each other, and private equity fund legal actions for a share of a cut of the settlements. The result? Sovereignty and democratic governance are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override domestic law and the rulings made by elected bodies is that this stipulation has been written – without democratic mandate, and often in conditions of total confidentiality – into bilateral investment treaties.

A Specific Case: The UK Coalmine

Last year, a conservation group won a great victory at the senior court. The justice found that proposals to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the Conservative government, which had accepted the bizarre claim that the mine would have had no impact on our carbon budgets. The incoming administration subsequently revoked the permission the Tories had issued. Now, this victory could be compromised by an offshore tribunal accountable to exclusively the corporations bringing the case.

Last August, a firm whose final controllers are based in the tax haven initiated proceedings challenging the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to proceed. The public has no clear indication how much this sum represents. What legal team is representing it in opposition to the UK administration? A member of parliament, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Challenge

On the same day that the panel on the coalmine case was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case so far, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has previously filed a claim against another European state with similar intent, seeking $16bn: half that nation's yearly income. Part of the legal team acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars believe that the EU’s procrastination in using frozen Russian assets as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations might be preventing the money Ukraine urgently requires.

Empty Promises and Mounting Costs

Politicians promised that these events wouldn’t happen. In 2014, a government leader, championing the largest and riskiest of all these agreements, declared: “We’ve signed trade agreement after trade deal and we have never seen a problem in the past.” An expert on this matter described critics of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “as corporations begin to understand the influence bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were met with widespread derision.

That prediction has now materialised. Recently, energy and extraction companies have lodged a historic level of suits against nations across the economic spectrum, challenging – as in the case of the UK mine – state efforts to prevent global warming. Companies have to date won vast sums through ISDS, of which oil majors have obtained the majority. That represents the combined GDP