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Can you perceive our political system works? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills pass into law. Legislation is upheld by the courts. Simple as that. Well, that used to be how it used to work. No longer.

The Rise of Offshore Tribunals

Today, foreign corporations, or the billionaires behind them, have the power to sue governments for the laws they pass, at private courts staffed by corporate lawyers. These proceedings are held away from public scrutiny. 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, including companies based in this country. They are open only to businesses operating from foreign soil.

If a tribunal determines that a law or policy may compromise the corporation’s expected profits, it can award financial penalties of vast sums, even billions.

This compensation constitute not actual losses but funds the arbitrators determine the company could potentially have made. The government could be forced to drop the legislation. It is deterred from passing future laws along the same lines, for fear of facing litigation.

A Process Spiralling Out of Control

Historically high figures of legal actions are being filed, as corporations learn from each other, and investment funds fund legal actions for a share of a portion of the settlements. The consequence? National sovereignty and democracy are turning into prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the rulings taken by legislatures is that this clause has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – into trade treaties.

A Concrete Instance: The UK Coalmine

Last year, activists achieved a major legal triumph at the senior court. The justice found that proposals to open the first deep coalmine in the UK for 30 years, in Cumbria, were unlawfully approved by the Conservative government, which had agreed to the questionable argument that the mine would have zero effect on our carbon budgets. The new government then withdrew the licence the Tories had issued. Currently, this success faces being overturned by an secret arbitration panel accountable to no one but the corporations bringing the case.

Last August, a corporate entity whose final controllers are based in the Cayman Islands lodged a claim challenging the UK government. Last week a arbitration panel in the United States was convened to adjudicate on it.

The claimant is suing the UK for the profits it would have generated if the mine had been permitted to commence operations. The public has no idea how much this could amount to. Which individual is representing it challenging the state? A sitting MP, and former attorney-general in the Conservative government, the noted patriot the MP. The state makes a decision, the domestic court upholds it, then a overseas corporation disputes it through an secretive arbitration panel, and a elected official represents its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it appears probable that he may employ the tribunal to contest the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has already initiated proceedings against another European state on these grounds, seeking sixteen billion dollars: half that government’s annual revenue. Part of the legal team acting for him in that case? Cherie Blair, married to the previous PM.

Trade specialists contend that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, unaccountable authority over democratic administrations could be blocking the finance Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that these events were not possible. In 2014, a former prime minister, advocating for the biggest and most dangerous of all such treaties, stated: “The UK has signed trade agreement after trade deal and there has not been a problem in the past.” An adviser on this matter labelled activists of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states needed to fear these lawsuits. Warnings that “as corporations grasp the authority they now possess, they will redirect their efforts from the poorer states to the strong ones” were dismissed with widespread derision.

That warning has come to pass. Recently, oil and gas and extraction companies have initiated a unprecedented number of suits against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – state efforts to prevent environmental catastrophe. Firms have to date won vast sums through ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP