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What is your reckon our political system operates? Maybe something like this. We elect MPs. They vote on bills. When a majority is secured, the bills become law. Legislation is maintained by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, international firms, along with the billionaires behind them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of commercial attorneys. Such disputes are conducted in secret. In contrast to domestic courts, these panels allow no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even companies headquartered in this country. Access is granted solely for corporations operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s anticipated profits, it has the power to grant compensation of vast sums, potentially billions.

These awards represent not tangible damages but compensation the arbitrators determine the company would perhaps have made. The state might be compelled to drop the legislation. It becomes discouraged from passing future laws of a similar nature, for fear of being sued.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as corporations take cues from each other, and private equity finance suits in return for a cut of the takings. The outcome? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the rulings taken by elected bodies is that this stipulation has been incorporated – absent public approval, and typically amid an atmosphere of extreme secrecy – into international trade agreements.

A Real-World Instance: The UK Coalmine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer determined that schemes to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had accepted the questionable argument that the mine would have had no impact on our carbon budgets. The Labour government then withdrew the consent the former government had issued. Now, this legal outcome could be compromised by an secret arbitration panel answering to only the companies filing the suit.

Last August, a firm whose final controllers reside in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a dispute settlement body in the US capital was convened to consider the case.

The company is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have little idea how much this might be. Which individual is serving as its counsel challenging the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The state enacts a policy, the national judiciary supports it, then a foreign company disputes it through an undemocratic private court, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case at present, but it is highly possible that he will utilise the ISDS mechanism to fight the restrictions the UK levied against him subsequent to the Russian aggression. He has previously initiated proceedings against a small nation on these grounds, seeking sixteen billion dollars: half that government’s yearly budget. Part of the lawyers acting for him in that case? Cherie Blair, spouse of the former British prime minister.

International law scholars believe that the EU’s delay in using frozen oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over democratic administrations may be obstructing the funds Ukraine desperately needs.

False Assurances and Growing Costs

The public was told that these events wouldn’t happen. Years ago, a senior politician, championing the most significant and hazardous of all these agreements, stated: “We’ve signed trade agreement after trade deal and there has not been a problem in the past.” An expert on this topic accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations start to realise the influence they now possess, they will redirect their efforts from the weak nations to the wealthy nations” were met with scepticism.

That prediction has now materialised. This year, energy and mining firms have lodged a record number of suits against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – official measures to prevent environmental catastrophe. Companies have to date won vast sums through ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP