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How do you perceive our political system works? Maybe similar to this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills pass into law. The law is upheld by the courts. That's it. Yet, that was how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

In the modern era, international firms, and the wealthy individuals that control them, have the power to sue elected administrations for the policies they pass, at secret arbitration panels composed of corporate lawyers. The cases are conducted away from public scrutiny. In contrast to domestic courts, these panels grant no right of appeal or judicial review. The general public are barred from bringing 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.

If a tribunal finds that a government measure might diminish the corporation’s projected profits, it can award financial penalties of hundreds of millions, running into billions.

This compensation constitute not actual losses but money the arbitrators conclude the company might otherwise have made. The state could be forced to drop the legislation. It becomes discouraged from passing future laws of a similar nature, for fear of being sued.

A System Growing Exponentially

Unprecedented levels of legal actions are being initiated, as firms take cues from each other, and private equity bankroll lawsuits in return for a cut of the takings. The consequence? Sovereignty and democratic governance are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to override a country's own laws and the choices enacted by parliaments is that this provision has been inserted – absent public approval, and often in an atmosphere of extreme secrecy – within trade treaties.

A Concrete Case: The Cumbrian Coalmine

A year ago, activists achieved a major legal triumph at the senior court. The judge found that schemes to dig the first deep coalmine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the Conservative government, which had accepted the bizarre claim that the mine would have had zero effect on national carbon targets. The incoming administration later cancelled the permission the previous administration had approved. Currently, this success faces being overturned by an foreign court answering to only the corporations petitioning it.

During August, a firm whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. Recently a arbitration panel in Washington DC was convened to hear it.

The company is litigating against the UK for the money it would have generated if the mine had been allowed to proceed. The public has no clear indication how much this could amount to. What legal team is serving as its counsel challenging the British government? A sitting MP, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The government passes a law, the domestic court validates it, then a international entity contests it through an undemocratic private court, and a member of our parliament works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the tribunal on the coal mine dispute was convened, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case at present, but it appears probable that he’ll use the ISDS mechanism to contest the restrictions the UK levied against him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, demanding a colossal sum: an amount representing half government’s yearly budget. Among the legal team representing him there? the wife of a former prime minister, married to the previous PM.

Legal experts argue that the EU’s delay in using frozen Russian assets as security for its aid for Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over elected governments might be preventing the finance Ukraine urgently requires.

Misleading Claims and Mounting Costs

Politicians promised that these events wouldn’t happen. In 2014, a former prime minister, promoting the largest and riskiest of all such treaties, told us: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” An adviser on this issue accused activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about such legal actions. Predictions that “once firms begin to understand the influence they now possess, they will turn their attention from the poorer states to the wealthy nations” were dismissed with scepticism.

That prediction has now materialised. In the current period, fossil fuel and mining firms have initiated a record number of claims against nations rich and poor, contesting – like the example of the Cumbrian coalmine – official measures to halt environmental catastrophe. Companies have thus far won vast sums by using ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP