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Can you reckon our political system functions? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. That's it. Well, that used to be how it used to work. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, overseas companies, or the oligarchs that control them, can sue nation states for the regulations they pass, at offshore tribunals staffed by corporate lawyers. Such disputes are conducted in secret. Differing from national judiciaries, these tribunals grant no opportunity to appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, including enterprises based in this country. They are open exclusively to corporations operating from foreign soil.

When a secret court rules that a government measure might diminish the corporation’s expected profits, it can award compensation of hundreds of millions, potentially billions.

These sums are based not on tangible damages but compensation the tribunal officials determine the company might otherwise have made. The government may have to rescind the measure. It is discouraged from enacting future policies in that area, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of cases are being filed, as firms observe each other, and private equity bankroll lawsuits in return for a share of the awards. The outcome? Sovereignty and democratic governance are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the rulings taken by legislatures is that this clause has been written – without democratic mandate, and often in an atmosphere of extreme secrecy – within bilateral investment treaties.

A Specific Case: The Whitehaven Coalmine

Last year, a conservation group secured a significant win at the high court. The judge determined that plans to dig the first deep coalmine in the UK for three decades, in northwest England, had been unlawfully approved by the outgoing administration, which had accepted the bizarre claim that the mine could have zero effect on climate commitments. The new government later cancelled the consent the Tories had issued. Now, this legal outcome could be compromised by an offshore tribunal answering to only the companies bringing the case.

In August, a corporate entity whose final controllers reside in the offshore financial centre initiated proceedings against the UK government. The previous week a arbitration panel in the United States was convened to adjudicate on it.

The claimant is suing the UK for the revenue it would have generated if the mine had received permission to commence operations. We have no clear indication how much this sum represents. What legal team is serving as its counsel challenging the state? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The state passes a law, the domestic court upholds it, then a foreign company challenges it through an unaccountable private court, and a sitting MP acts on its behalf.

The Russian Lawsuit

Concurrently that the court on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. We know scarce of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the restrictions the UK levied against him subsequent to the Russian aggression. He has already initiated proceedings against another European state for this reason, claiming a colossal sum: half that state's annual revenue. Part of the legal team on his side? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in utilising seized Russian assets as guarantee for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Escalating Risks

We were assured that these scenarios could not occur. In 2014, a government leader, championing the biggest and most dangerous of all these agreements, told us: “The UK has signed trade deal after trade deal and there has never been a case in the past.” A consultant on this matter accused critics of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “as corporations start to realise the authority they’ve been granted, they will turn their attention from the weak nations to the strong ones” were met with widespread derision.

That prediction has come to pass. This year, fossil fuel and mining firms have filed a historic level of claims against nations rich and poor, contesting – similar to the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Firms have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured the majority. That represents the combined GDP