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Can you reckon our political system functions? Maybe similar to this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Legislation is upheld by the courts. That's it. Well, that was how it once functioned. No longer.

The Advent of Offshore Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals composed of business advocates. Such disputes are conducted away from public scrutiny. Unlike our courts, these tribunals provide no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises based in this country. Access is granted solely for corporations registered abroad.

Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it may order damages of vast sums, potentially billions.

This compensation represent not tangible damages but funds the tribunal officials decide the company would perhaps have made. The state might be compelled to drop the legislation. It will be deterred from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies observe each other, and hedge funds finance suits in return for a portion of the takings. The outcome? Democratic sovereignty and democratic governance are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the decisions enacted by legislatures is that this provision has been written – without democratic mandate, and frequently under conditions of extreme secrecy – inside bilateral investment treaties.

A Concrete Example: The Whitehaven Coal Mine

Last year, activists secured a significant win at the senior court. The justice determined that plans to open the first deep coalmine in the UK for three decades, in Cumbria, had been unlawfully approved by the Conservative government, which had agreed to the questionable argument that the mine would have no impact on national carbon targets. The incoming administration then withdrew the consent the previous administration had approved. Today, this victory could be compromised by an secret arbitration panel reporting to exclusively the corporations petitioning it.

During August, a firm whose final controllers are located in the offshore financial centre lodged a claim challenging the UK government. The previous week a dispute settlement body in the US capital was established to adjudicate on it.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to proceed. We have little idea how much this sum represents. What legal team is representing it in opposition to the state? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary upholds it, then a international entity challenges it through an unaccountable arbitration panel, and a elected official represents its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows scarce of the case at present, but it is highly possible that he’ll use the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the war in Ukraine. He has already filed a claim against another European state with similar intent, demanding a colossal sum: equivalent to half of government’s yearly budget. Among the lawyers acting for him in that case? Cherie Blair, spouse of the previous PM.

International law scholars contend that the EU’s procrastination in leveraging immobilised state funds as security for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over elected governments might be preventing the funds Ukraine desperately needs.

False Assurances and Growing Threats

The public was told that such things were not possible. Previously, a former prime minister, advocating for the biggest and most dangerous of all these agreements, told us: “The UK has signed trade deal upon trade deal and there has never been a problem in the past.” An adviser on this topic described campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about such legal actions. Predictions that “once firms grasp the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with general mockery.

That threat is now a reality. This year, energy and resource corporations have initiated a historic level of claims against nations across the economic spectrum, contesting – as in the case of the UK mine – state efforts to halt global warming. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP