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How do you reckon our political system functions? It could be similar to this. Citizens choose MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. However, that was how it once functioned. Not anymore.

The Rise of Offshore Arbitration Panels

Today, foreign corporations, and the billionaires behind them, have the power to sue governments for the regulations they pass, at offshore tribunals composed of corporate lawyers. These proceedings are held away from public scrutiny. Differing from national judiciaries, these panels provide no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. The door is open solely for businesses registered abroad.

Should an arbitration panel determines that a government measure might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, potentially billions.

These sums constitute not tangible damages but funds the tribunal officials conclude the company would perhaps have made. The state might be compelled to rescind the measure. It becomes hesitant to enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of disputes are being brought, as firms take cues from each other, and private equity fund legal actions for a share of a portion of the settlements. The consequence? National sovereignty and popular rule are turning into prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the choices made by elected bodies is that this clause has been inserted – without democratic mandate, and frequently under an atmosphere of extreme secrecy – within trade treaties.

A Concrete Case: The Whitehaven Coal Mine

A year ago, activists won a great victory at the High Court. The judge ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine could have no impact on climate commitments. The new government later cancelled the permission the previous administration had approved. Today, this success is under threat by an foreign court answering to exclusively the companies petitioning it.

Last August, a firm whose final controllers are located in the offshore financial centre filed a lawsuit against the UK government. Last week a dispute settlement body in Washington DC was set up to hear it.

This firm is litigating against the UK for the money it would have generated if the mine had been permitted to proceed. Citizens have no clear indication how much this could amount to. What legal team is acting on its behalf against the British government? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The state passes a law, the domestic court supports it, then a international entity contests it through an unaccountable private court, and a elected official acts on its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coal mine dispute was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case at present, but it appears probable that he may employ the ISDS mechanism to contest the penalties the UK levied against him following the war in Ukraine. He has previously initiated proceedings against another European state for this reason, claiming $16bn: half that state's yearly income. Included in the legal team representing him there? the wife of a former prime minister, married to the former British prime minister.

International law scholars argue that the EU’s hesitation in leveraging immobilised state funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments might be preventing the finance Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that these scenarios could not occur. Previously, a senior politician, advocating for the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade deal upon trade deal and we have never seen a case in the past.” An expert on this topic described campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about such legal actions. Cautionary notes that “when companies grasp the power they’ve been granted, they will turn their attention from the poorer states to the developed economies” were greeted by scepticism.

That warning has now materialised. Recently, oil and gas and mining firms have initiated a record number of suits against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – official measures to prevent environmental catastrophe. Companies have so far won $114bn through ISDS, of which energy giants have obtained $84bn. That represents the combined GDP