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Can you understand our political system functions? Perhaps something like this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills become law. The law are enforced by the courts. End of story. However, that’s how it used to work. Those days are over.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, or the oligarchs behind them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels made up of corporate lawyers. The cases are held away from public scrutiny. Unlike our courts, these panels allow no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. They are open solely for entities registered abroad.

When a secret court determines that a government measure may compromise the corporation’s anticipated profits, it may order compensation of vast sums, running into billions.

This compensation are based not on tangible damages but money the panel members conclude the company would perhaps have made. The administration might be compelled to rescind the measure. It becomes deterred from enacting future policies along the same lines, for fear of being sued.

A Process Running Rampant

Record numbers of disputes are being initiated, as companies take cues from each other, and hedge funds finance suits in return for a cut of the awards. The consequence? National sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the rulings made by elected bodies is that this clause has been inserted – without democratic mandate, and typically amid a climate of extreme secrecy – into bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners won a great victory at the senior court. The judge ruled that schemes to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had agreed to the questionable argument that the mine would have had zero effect on our carbon budgets. The new government later cancelled the licence the previous administration had approved. Today, this success could be compromised by an foreign court accountable to exclusively the entities petitioning it.

During August, a company whose beneficial owners are based in the Cayman Islands lodged a claim against the UK government. The previous week a tribunal in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the money it would have generated if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. What legal team is serving as its counsel against the UK administration? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The state passes a law, the national judiciary upholds it, then a international entity disputes it through an unaccountable offshore tribunal, and a sitting MP works for its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the mining lawsuit was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know scarce of the case so far, but it seems likely that he will utilise the arbitration process to challenge the restrictions the UK levied against him after the war in Ukraine. He has started suing another European state for this reason, demanding a colossal sum: an amount representing half government’s yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars argue that the EU’s hesitation in using frozen state funds as security for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over sovereign states may be obstructing the finance Ukraine critically depends on.

False Assurances and Mounting Costs

We were assured that these scenarios could not occur. Years ago, a government leader, advocating for the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to investment treaty upon trade deal and there has not been a case in the past.” An expert on this matter labelled activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “once firms grasp the influence they now possess, they will shift their focus from the vulnerable countries to the wealthy nations” were met with widespread derision.

That warning is now a reality. In the current period, energy and mining firms have filed a historic level of suits against nations rich and poor, challenging – as in the case of the UK mine – official measures to stop environmental catastrophe. Corporations have so far won $114bn by using ISDS, of which fossil fuel companies have obtained the majority. That represents the combined GDP