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How do you reckon our political system works? It could be something like this. The public votes for MPs. They vote on bills. When a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that used to be how it used to work. Not anymore.

The Emergence of Offshore Arbitration Panels

Nowadays, international firms, or the billionaires who own them, are able to litigate against elected administrations for the laws they pass, at offshore tribunals staffed by corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these bodies provide no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even businesses based in this country. Access is granted exclusively to corporations registered abroad.

When a secret court finds that a government measure could harm the corporation’s projected profits, it may order damages of hundreds of millions of pounds, running into billions.

These awards are based not on actual losses but money the tribunal officials determine the company might otherwise have made. The state might be compelled to drop the legislation. It will be discouraged from passing future laws in that area, worried about incurring a lawsuit.

A Process Growing Exponentially

Record numbers of legal actions are being brought, as corporations take cues from each other, and private equity fund legal actions in return for a cut of the settlements. The outcome? Democratic sovereignty and democratic governance are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the choices made by parliaments is that this provision has been incorporated – absent public approval, and often in a climate of profound opacity – within bilateral investment treaties.

A Concrete Instance: The Whitehaven Coal Mine

Twelve months ago, activists secured a significant win at the senior court. The judge determined that plans to dig the first deep coalmine in the UK for three decades, in Cumbria, had been wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine could have zero effect on our carbon budgets. The Labour government subsequently revoked the permission the Tories had approved. Today, this legal outcome faces being overturned by an secret arbitration panel answering to exclusively the corporations bringing the case.

During August, a company whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. Last week a arbitration panel in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to proceed. The public has no clear indication how much this sum represents. Who is serving as its counsel in opposition to the UK administration? An elected representative, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration passes a law, the domestic court validates it, then a overseas corporation challenges it through an undemocratic private court, and a member of our parliament acts on its behalf.

The Russian Case

On the same day that the panel on the mining lawsuit was established, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case to date, but it is highly possible that he may employ the tribunal to fight the penalties the UK levied against him following the war in Ukraine. He has filed a claim against Luxembourg for this reason, seeking a colossal sum: half that nation's annual revenue. Part of the legal team on his side? Cherie Blair, wife of the previous PM.

Trade specialists believe that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over elected governments might be preventing the funds Ukraine urgently requires.

Empty Promises and Mounting Costs

We were assured that these events were not possible. In 2014, a government leader, promoting the biggest and most dangerous of all such treaties, declared: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” An adviser on this matter accused critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries had to worry about these lawsuits. Predictions that “as corporations grasp the power bestowed upon them, they will turn their attention from the weak nations to the strong ones” were met with scepticism.

That prediction has now materialised. This year, energy and extraction companies have initiated a record number of claims against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – state efforts to prevent global warming. Corporations have so far won $114bn via ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP