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What is your perceive our political system works? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Statutes are enforced by the courts. End of story. Yet, that used to be how it used to work. No longer.

The Advent of Offshore Arbitration Panels

Today, overseas companies, or the oligarchs that control them, have the power to sue nation states for the regulations they pass, at private courts made up of commercial attorneys. Such disputes take place behind closed doors. Unlike our courts, these panels allow no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even companies headquartered in this country. They are open solely for businesses operating from foreign soil.

If a tribunal determines that a legislative action could harm the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

These awards represent not tangible damages but compensation the arbitrators determine the company would perhaps have made. The state may have to drop the legislation. It will be deterred from passing future laws along the same lines, for fear of facing litigation.

A System Growing Exponentially

Historically high figures of disputes are being filed, as corporations take cues from each other, and hedge funds bankroll lawsuits in exchange for a share of the settlements. The outcome? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can trump a country's own laws and the choices enacted by elected bodies is that this clause has been written – without public consent, and often in an atmosphere of profound opacity – within bilateral investment treaties.

A Specific Example: The Cumbrian Coalmine

A year ago, a conservation group secured a significant win at the senior court. The justice ruled that plans to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have had zero effect on our carbon budgets. The incoming administration later cancelled the consent the previous administration had granted. Currently, this success could be compromised by an secret arbitration panel answering to only the companies filing the suit.

Last August, a company whose beneficial owners reside in the offshore financial centre filed a lawsuit versus the UK government. The previous week a dispute settlement body in the United States was set up to hear it.

The company is suing the UK for the money it might have made if the mine had received permission to go ahead. We have little idea how much this could amount to. Who is serving as its counsel in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court validates it, then a overseas corporation contests it through an secretive arbitration panel, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the mining lawsuit was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows little of the case so far, but it appears probable that he will utilise the tribunal to fight the penalties the UK imposed on him after the invasion of Ukraine. He has already started suing Luxembourg for this reason, claiming sixteen billion dollars: an amount representing half nation's yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

International law scholars believe that the EU’s delay in leveraging immobilised Russian assets as security for its financial support package arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over sovereign states may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Mounting Risks

We were assured that these scenarios could not occur. Previously, a senior politician, promoting the most significant and hazardous of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An adviser on this topic described activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Warnings that “when companies grasp the authority they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were met with scepticism.

That warning has come to pass. Recently, energy and resource corporations have initiated a record number of suits against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to halt climate breakdown. Corporations have thus far won vast sums through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That equates to the combined GDP