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What is your reckon our political system operates? It could be similar to this. We elect MPs. They vote on bills. When a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. End of story. However, that’s how it once functioned. No longer.

The Emergence of Offshore Arbitration Panels

Today, overseas companies, or the wealthy individuals behind them, are able to litigate against nation states for the regulations they pass, at offshore tribunals made up of business advocates. The cases are held behind closed doors. Differing from national judiciaries, these bodies allow no right of appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, including businesses based in this country. Access is granted only to businesses based overseas.

When a secret court finds that a government measure might diminish the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These awards constitute not real financial harm but compensation the panel members determine the company could potentially have made. The government could be forced to drop the legislation. It becomes hesitant to passing future laws in that area, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of cases are being brought, as companies take cues from each other, and hedge funds fund legal actions for a share of a portion of the takings. The outcome? Democratic sovereignty and democratic governance are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the decisions enacted by legislatures is that this stipulation has been written – without public consent, and often in an atmosphere of profound opacity – into international trade agreements.

A Concrete Example: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the High Court. The justice ruled that plans to excavate the first new deep coal mine in the UK for a generation, in Cumbria, had been unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have had no consequence on climate commitments. The Labour government later cancelled the permission the Tories had granted. Now, this success could be compromised by an foreign court reporting to exclusively the corporations petitioning it.

In August, a firm whose final controllers reside in the tax haven filed a lawsuit against the UK government. Last week a tribunal in the US capital was established to hear it.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has little idea how much this sum represents. Who is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the Conservative government, that great patriot Geoffrey Cox. The government makes a decision, the domestic court validates it, then a international entity challenges it through an unaccountable offshore tribunal, and a elected official works for its behalf.

A Sanctions Challenge

Simultaneously that the panel on the mining lawsuit was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are little of the case at present, but it is highly possible that he will utilise the arbitration process to contest the restrictions the UK levied against him after the Russian aggression. He has filed a claim against another European state on these grounds, demanding $16bn: equivalent to half of nation's yearly income. Included in the legal team representing him there? Cherie Blair, married to the ex-UK leader.

Trade specialists believe that the EU’s delay in using frozen oligarchs' funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the funds Ukraine critically depends on.

Empty Promises and Mounting Costs

We were assured that these scenarios wouldn’t happen. Years ago, a government leader, championing the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and we have never seen a issue in the past.” An adviser on this issue labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression appeared to be that exclusively weaker states had to worry about such legal actions. Warnings that “as corporations begin to understand the influence they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were met with general mockery.

That warning has come to pass. Recently, energy and extraction companies have initiated a unprecedented number of cases against nations both wealthy and developing, contesting – as in the case of the UK mine – official measures to prevent global warming. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That represents the combined GDP