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Can you perceive our political system operates? Maybe similar to this. We elect MPs. They vote on bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. Yet, that was how it operated in the past. Those days are over.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, or the wealthy individuals that control them, are able to litigate against elected administrations for the laws they pass, at private courts staffed by commercial attorneys. The cases take place behind closed doors. In contrast to domestic courts, these tribunals provide no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even enterprises headquartered in this country. Access is granted only to corporations registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions, even billions.

These sums represent not real financial harm but money the arbitrators conclude the company would perhaps have made. The state might be compelled to abandon its policy. It becomes deterred from passing future laws along the same lines, due to the risk of being sued.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies learn from each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The result? Democratic sovereignty and democratic governance are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the decisions enacted by parliaments is that this stipulation has been incorporated – without democratic mandate, and typically amid conditions of profound opacity – inside international trade agreements.

A Specific Example: The UK Coal Mine

Last year, activists achieved a major legal triumph at the high court. The judge ruled that schemes to excavate the first major coal mine in the UK for a generation, in northwest England, had been illegally sanctioned by the previous government, which had endorsed the questionable argument that the mine would have no consequence on national carbon targets. The incoming administration then withdrew the consent the Tories had issued. Now, this legal outcome is under threat by an offshore tribunal accountable to no one but the corporations filing the suit.

In August, a company whose ultimate owners reside in the tax haven filed a lawsuit against the UK government. The previous week a tribunal in the US capital was established to consider the case.

The company is suing the UK for the revenue it would have generated if the mine had been allowed to commence operations. We have no idea how much this sum represents. Which individual is representing it in opposition to the UK administration? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary supports it, then a international entity contests it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case at present, but it appears probable that he’ll use the tribunal to contest the restrictions the UK levied against him subsequent to the Russian aggression. He has already started suing a small nation on these grounds, demanding $16bn: an amount representing half government’s yearly income. Part of the lawyers on his side? the wife of a former prime minister, married to the ex-UK leader.

International law scholars argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over sovereign states could be blocking the funds Ukraine desperately needs.

Empty Promises and Growing Threats

The public was told that these scenarios could not occur. Years ago, a senior politician, promoting the biggest and most dangerous of all investment pacts, told us: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” An expert on this topic accused campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression appeared to be that only poorer nations had to worry about these lawsuits. Warnings that “when companies start to realise the authority they now possess, they will shift their focus from the weak nations to the developed economies” were greeted by general mockery.

That warning has now materialised. This year, energy and extraction companies have lodged a record number of cases against nations across the economic spectrum, opposing – similar to the Whitehaven project – official measures to halt environmental catastrophe. Firms have to date won vast sums through ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP