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How do you perceive our political system functions? It could be similar to this. We elect MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. The law are enforced by the courts. That's it. However, that’s how it once functioned. No longer.

The Rise of Offshore Arbitration Panels

Today, foreign corporations, or the billionaires that control them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals made up of business advocates. These proceedings are conducted behind closed doors. In contrast to domestic courts, these panels grant no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, or even companies based in this country. They are open solely for corporations based overseas.

Should an arbitration panel determines that a legislative action could harm the corporation’s projected profits, it can award compensation of vast sums, even billions.

This compensation constitute not actual losses but compensation the arbitrators conclude the company would perhaps have made. The state may have to rescind the measure. It becomes deterred from passing future laws in that area, due to the risk of facing litigation.

A System Spiralling Out of Control

Record numbers of legal actions are being brought, as companies take cues from each other, and hedge funds finance suits for a share of a portion of the takings. The consequence? Democratic sovereignty and popular rule are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the choices made by elected bodies is that this stipulation has been incorporated – without public consent, and often in an atmosphere of total confidentiality – into international trade agreements.

A Specific Case: The Whitehaven Coal Mine

Last year, environmental campaigners won a great victory at the High Court. The justice ruled that schemes to dig the first new deep coal mine in the UK for a generation, in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have had zero effect on national carbon targets. The Labour government then withdrew the consent the previous administration had granted. Today, this success could be compromised by an offshore tribunal reporting to no one but the companies filing the suit.

During August, a firm whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. Recently a tribunal in the US capital was established to adjudicate on it.

This firm is suing the UK for the profits it might have made if the mine had received permission to commence operations. Citizens have little idea how much this might be. What legal team is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The administration passes a law, the high court supports it, then a foreign company challenges it through an secretive arbitration panel, and a sitting MP works for its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case to date, but it is highly possible that he may employ the tribunal to fight the restrictions the UK levied against him subsequent to the Russian aggression. He has previously filed a claim against another European state on these grounds, claiming a colossal sum: an amount representing half nation's yearly income. Among the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Legal experts believe that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine critically depends on.

Empty Promises and Mounting Risks

Politicians promised that these scenarios could not occur. Years ago, a senior politician, championing the largest and riskiest of all these agreements, declared: “The UK has signed trade deal after trade deal and there has not been a problem in the past.” An adviser on this topic labelled activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations needed to fear such legal actions. Warnings that “once firms grasp the authority they now possess, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That warning has come to pass. This year, fossil fuel and mining firms have lodged a historic level of claims against nations across the economic spectrum, contesting – like the example of the UK mine – official measures to halt global warming. Corporations have so far won vast sums via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP