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Can you perceive our political system functions? It could be along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills become law. Legislation is upheld by the courts. That's it. Well, that used to be how it operated in the past. Not anymore.

The Emergence of Offshore Courts

In the modern era, international firms, along with the wealthy individuals who own them, can sue nation states for the laws they pass, at secret arbitration panels staffed by business advocates. The cases are held behind closed doors. Differing from national judiciaries, these panels grant no right of appeal or legal review. The general public are barred from bringing a case to them, and neither can our government, including enterprises operating from this country. Access is granted solely for corporations operating from foreign soil.

If a tribunal finds that a government measure may compromise the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These sums are based not on tangible damages but money the tribunal officials determine the company might otherwise have made. The administration may have to drop the legislation. It will be deterred from enacting future policies in that area, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of legal actions are being filed, as companies observe each other, and investment funds bankroll lawsuits for a share of a portion of the settlements. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the choices taken by elected bodies is that this provision has been incorporated – without democratic mandate, and often in conditions of total confidentiality – inside bilateral investment treaties.

A Specific Instance: The Whitehaven Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The judge found that proposals to open the first new deep coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the Conservative government, which had agreed to the questionable argument that the mine could have no consequence on our carbon budgets. The incoming administration subsequently revoked the permission the Tories had issued. Now, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the companies filing the suit.

Last August, a company whose final controllers are located in the Cayman Islands filed a lawsuit against the UK government. Recently a arbitration panel in the US capital was established to consider the case.

The claimant is suing the UK for the profits it might have made if the mine had received permission to proceed. We have no clear indication how much this sum represents. What legal team is acting on its behalf against the state? A sitting MP, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a foreign company disputes it through an secretive private court, and a sitting MP represents its behalf.

The Russian Challenge

Concurrently that the panel on the coal mine dispute was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. Details are little of the case so far, but it is highly possible that he’ll use the tribunal to fight the penalties the UK imposed on him following the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, claiming sixteen billion dollars: an amount representing half government’s yearly budget. Included in the lawyers on his side? Cherie Blair, spouse of the ex-UK leader.

International law scholars argue that the EU’s hesitation in using frozen state funds as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, unaccountable authority over elected governments could be blocking the funds Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that such things could not occur. Years ago, a senior politician, advocating for the biggest and most dangerous of all such treaties, declared: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” A consultant on this matter labelled campaigners of “alarmism … in reality, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries needed to fear ISDS claims. Predictions that “as corporations begin to understand the influence they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That threat has come to pass. This year, oil and gas and resource corporations have initiated a historic level of claims against nations both wealthy and developing, challenging – like the example of the UK mine – government attempts to stop global warming. Firms have to date won vast sums via ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP