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How do you understand our political system functions? Maybe similar to this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Statutes are enforced by the courts. End of story. Well, that was how it used to work. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, or the oligarchs behind them, have the power to sue governments for the regulations they pass, at private courts composed of commercial attorneys. Such disputes take place behind closed doors. Unlike our courts, these tribunals grant no avenue for appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even businesses based in this country. Access is granted only to entities operating from foreign soil.

When a secret court rules that a government measure might diminish the corporation’s anticipated profits, it may order damages of hundreds of millions, even billions.

This compensation represent not actual losses but money the arbitrators decide the company might otherwise have made. The state could be forced to rescind the measure. It becomes hesitant to enacting future policies along the same lines, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being filed, as firms learn from each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The consequence? Sovereignty and democracy are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the decisions made by elected bodies is that this clause has been written – without democratic mandate, and often in conditions of total confidentiality – within international trade agreements.

A Concrete Case: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the high court. The judge ruled that schemes to excavate the first deep coalmine in the UK for a generation, in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the permission the Tories had granted. Today, this success could be compromised by an secret arbitration panel accountable to exclusively the entities petitioning it.

During August, a firm whose beneficial owners are based in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in Washington DC was established to adjudicate on it.

This firm is suing the UK for the money it could have earned if the mine had received permission to go ahead. Citizens have little idea how much this might be. Who is serving as its counsel challenging the state? A sitting MP, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a international entity contests it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Case

On the same day that the panel on the coal mine dispute was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case so far, but it appears probable that he will utilise the tribunal to fight the sanctions the UK imposed on him subsequent to the Russian aggression. He has already initiated proceedings against another European state on these grounds, seeking $16bn: half that government’s yearly budget. Included in the lawyers acting for him in that case? Cherie Blair, wife of the former British prime minister.

Legal experts contend that the EU’s delay in using frozen state funds as collateral for its financial support package is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations might be preventing the finance Ukraine critically depends on.

Misleading Claims and Escalating Costs

Politicians promised that these events could not occur. Years ago, a government leader, advocating for the most significant and hazardous of all these agreements, told us: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” A consultant on this issue described campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “when companies grasp the authority bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were met with general mockery.

That prediction is now a reality. This year, fossil fuel and resource corporations have lodged a record number of suits against nations both wealthy and developing, challenging – similar to the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained $84bn. That represents the combined GDP