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How do you perceive our political system operates? Perhaps something like this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills are enacted as law. The law are enforced by the courts. End of story. However, that was how it used to work. Those days are over.

The Emergence of Offshore Arbitration Panels

Today, international firms, or the wealthy individuals behind them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted away from public scrutiny. Unlike our courts, these bodies grant no opportunity to appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. The door is open exclusively to entities operating from foreign soil.

When a secret court rules that a legislative action might diminish the corporation’s projected profits, it can award damages of hundreds of millions, potentially billions.

These sums constitute not tangible damages but money the tribunal officials determine the company would perhaps have made. The government may have to abandon its policy. It becomes deterred from passing future laws in that area, worried about being sued.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being initiated, as corporations take cues from each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The result? Sovereignty and popular rule are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the rulings enacted by legislatures is that this provision has been incorporated – absent public approval, and typically amid conditions of total confidentiality – into bilateral investment treaties.

A Concrete Case: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The judge determined that schemes to open the first deep coalmine in the UK for three decades, in Cumbria, were wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government then withdrew the permission the Tories had approved. Currently, this legal outcome faces being overturned by an foreign court answering to only the companies petitioning it.

During August, a company whose final controllers are based in the Cayman Islands lodged a claim versus the UK government. The previous week a arbitration panel in Washington DC was established to consider the case.

The claimant is seeking compensation from the UK for the money it might have made if the mine had received permission to proceed. We have no idea how much this could amount to. What legal team is acting on its behalf in opposition to the state? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government enacts a policy, the high court supports it, then a foreign company disputes it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Case

Simultaneously that the court on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK levied against him after the Russian aggression. He has started suing a small nation for this reason, seeking sixteen billion dollars: half that government’s yearly budget. Part of the lawyers representing him there? Cherie Blair, spouse of the previous PM.

International law scholars believe that the EU’s procrastination in using frozen Russian assets as collateral for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations could be blocking the funds Ukraine urgently requires.

False Assurances and Escalating Costs

The public was told that such things could not occur. In 2014, a former prime minister, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to investment treaty upon trade deal and there has not been a problem in the past.” A consultant on this matter described activists of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries had to worry about ISDS claims. Predictions that “as corporations start to realise the influence bestowed upon them, they will turn their attention from the poorer states to the developed economies” were greeted by widespread derision.

That threat is now a reality. Recently, energy and extraction companies have filed a historic level of suits against nations both wealthy and developing, contesting – as in the case of the UK mine – government attempts to prevent environmental catastrophe. Corporations have thus far won vast sums via ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP