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Can you perceive our political system works? Perhaps something like this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills become law. Legislation are enforced by the courts. Simple as that. Yet, that was how it operated in the past. Those days are over.

The Advent of Offshore Tribunals

In the modern era, international firms, or the oligarchs who own them, can sue nation states for the regulations they pass, at private courts made up of business advocates. These proceedings are conducted in secret. Differing from national judiciaries, these bodies provide no avenue for appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even enterprises based in this country. They are open solely for businesses operating from foreign soil.

If a tribunal rules that a law or policy may compromise the corporation’s expected profits, it can award damages of hundreds of millions of pounds, running into billions.

These sums represent not tangible damages but funds the panel members determine the company could potentially have made. The state may have to drop the legislation. It becomes hesitant to passing future laws in that area, due to the risk of being sued.

A Process Growing Exponentially

Unprecedented levels of disputes are being filed, as corporations learn from each other, and private equity finance suits for a share of a cut of the takings. The result? Sovereignty and democracy are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the choices taken by legislatures is that this clause has been written – absent public approval, and often in conditions of total confidentiality – inside international trade agreements.

A Real-World Instance: The Cumbrian Coalmine

Last year, a conservation group achieved a major legal triumph at the senior court. The judge found that schemes to excavate the first major coal mine in the UK for 30 years, in northwest England, had been illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine could have zero effect on our carbon budgets. The Labour government then withdrew the licence the previous administration had approved. Today, this success is under threat by an secret arbitration panel reporting to no one but the corporations bringing the case.

During August, a company whose final controllers reside in the tax haven initiated proceedings against the UK government. The previous week a dispute settlement body in Washington DC was established to adjudicate on it.

The company is litigating against the UK for the revenue it would have generated if the mine had received permission to go ahead. The public has little idea how much this could amount to. What legal team is representing it in opposition to the state? A sitting MP, and former attorney-general in the outgoing administration, that great patriot the MP. The government passes a law, the national judiciary upholds it, then a foreign company contests it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Case

Simultaneously that the court on the coal mine dispute was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case at present, but it is highly possible that he’ll use the tribunal to challenge the restrictions the UK levied against him subsequent to the Russian aggression. He has already initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: an amount representing half government’s yearly budget. Among the counsel acting for him in that case? Cherie Blair, wife of the former British prime minister.

International law scholars believe that the EU’s delay in leveraging immobilised state funds as security for its aid for Ukraine stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Mounting Costs

The public was told that these events could not occur. In 2014, a former prime minister, advocating for the largest and riskiest of all these agreements, declared: “The UK has signed trade agreement after trade deal and we have never seen a problem in the past.” A consultant on this issue described activists of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message was crafted to be that only poorer nations had to worry about these lawsuits. Predictions that “as corporations begin to understand the authority they now possess, they will shift their focus from the poorer states to the strong ones” were greeted by general mockery.

That warning has now materialised. Recently, energy and mining firms have lodged a record number of suits against nations both wealthy and developing, opposing – like the example of the Whitehaven project – government attempts to stop climate breakdown. Corporations have thus far won $114bn by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP