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How do you perceive our political system works? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. Well, that’s how it operated in the past. Those days are over.

The Rise of Offshore Arbitration Panels

In the modern era, foreign corporations, or the oligarchs that control them, can sue elected administrations for the policies they pass, at secret arbitration panels made up of business advocates. The cases take place in secret. Unlike our courts, these tribunals grant no opportunity to appeal or legal review. You or I are unable to file a case to them, nor can our government, or even enterprises based in this country. Access is granted only to entities operating from foreign soil.

When a secret court determines that a legislative action might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions of pounds, running into billions.

These sums constitute not actual losses but compensation the arbitrators decide the company would perhaps have made. The government could be forced to abandon its policy. It will be deterred from introducing similar legislation along the same lines, for fear of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being initiated, as firms learn from each other, and investment funds finance suits for a share of a cut of the settlements. The outcome? National sovereignty and democratic governance are turning into unaffordable.

The system is called “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 written – without public consent, and frequently under conditions of extreme secrecy – within trade treaties.

A Specific Instance: The Cumbrian Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The presiding officer found that schemes to dig the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine could have zero effect on our carbon budgets. The Labour government later cancelled the permission the Tories had approved. Today, this legal outcome faces being overturned by an foreign court answering to exclusively the entities bringing the case.

In August, a company whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. Last week a dispute settlement body in the US capital was set up to consider the case.

The company is seeking compensation from the UK for the profits it could have earned if the mine had received permission to proceed. We have no idea how much this might be. Which individual is representing it challenging the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration makes a decision, the national judiciary upholds it, then a international entity disputes it through an undemocratic arbitration panel, and a elected official acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK levied against him after the Russian aggression. He has filed a claim against another European state on these grounds, claiming $16bn: equivalent to half of nation's yearly income. Included in the legal team acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

International law scholars argue that the EU’s hesitation in using frozen Russian assets as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Growing Threats

The public was told that such things were not possible. Years ago, a government leader, championing the most significant and hazardous of all investment pacts, stated: “The UK has signed trade agreement after trade deal and there has never been a issue in the past.” An adviser on this issue accused campaigners of “alarmism … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries had to worry about ISDS claims. Warnings that “as corporations begin to understand the power they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has now materialised. In the current period, fossil fuel and resource corporations have lodged a record number of claims against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – government attempts to prevent environmental catastrophe. Companies have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP