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How do you perceive our political system works? Perhaps something like this. We elect MPs. They legislate on bills. If a majority is secured, the bills become law. Statutes is upheld by the courts. Simple as that. However, that’s how it used to work. Those days are over.

The Emergence of Offshore Arbitration Panels

Nowadays, overseas companies, or the billionaires behind them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals composed of business advocates. The cases are held away from public scrutiny. Unlike our courts, these bodies allow no right of appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, including businesses operating from this country. The door is open solely for entities operating from foreign soil.

When a secret court finds that a law or policy may compromise the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

These awards represent not tangible damages but funds the tribunal officials decide the company could potentially have made. The state could be forced to rescind the measure. It will be hesitant to passing future laws along the same lines, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as companies learn from each other, and hedge funds fund legal actions for a share of a portion of the awards. The result? National sovereignty and democracy are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings taken by legislatures is that this provision has been incorporated – without public consent, and often in an atmosphere of total confidentiality – inside international trade agreements.

A Concrete Instance: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the High Court. The justice found that proposals to excavate the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the consent the previous administration had granted. Now, this victory faces being overturned by an secret arbitration panel reporting to only the companies petitioning it.

Last August, a company whose beneficial owners reside in the Cayman Islands filed a lawsuit challenging the UK government. Recently a tribunal in the United States was convened to consider the case.

This firm is suing the UK for the profits it could have earned if the mine had received permission to go ahead. We have little idea how much this might be. Which individual is serving as its counsel challenging the UK administration? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot the MP. The state makes a decision, the domestic court supports it, then a international entity challenges it through an undemocratic private court, and a sitting MP represents its behalf.

A Sanctions Challenge

Simultaneously that the panel on the mining lawsuit was convened, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know scarce of the case so far, but it is highly possible that he will utilise the ISDS mechanism to contest the penalties the UK levied against him after the invasion of Ukraine. He has already filed a claim against a small nation on these grounds, seeking $16bn: an amount representing half government’s annual revenue. Part of the lawyers acting for him in that case? Cherie Blair, wife of the ex-UK leader.

Trade specialists argue that the EU’s delay in using frozen oligarchs' funds as security for its aid for Ukraine arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over sovereign states may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Growing Risks

Politicians promised that these events could not occur. Years ago, a former prime minister, championing the most significant and hazardous of all investment pacts, stated: “The UK has signed trade deal upon trade deal and there has not been a case in the past.” A consultant on this topic accused activists of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “when companies grasp the power they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were dismissed with general mockery.

That prediction is now a reality. In the current period, fossil fuel and mining firms have initiated a record number of cases against nations both wealthy and developing, contesting – similar to the UK mine – official measures to prevent climate breakdown. Companies have thus far won $114bn through ISDS, of which energy giants have secured $84bn. That represents the combined GDP