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Can you reckon our political system operates? Maybe something like this. We elect MPs. They vote on bills. If a majority is obtained, the bills become law. Legislation is upheld by the courts. Simple as that. However, that was how it once functioned. Not anymore.

The Emergence of Offshore Arbitration Panels

In the modern era, overseas companies, along with the oligarchs behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held behind closed doors. Unlike our courts, these bodies grant no right of appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, or even businesses headquartered in this country. The door is open solely for businesses registered abroad.

Should an arbitration panel determines that a legislative action may compromise the corporation’s projected profits, it can award compensation of hundreds of millions, potentially billions.

These sums constitute not tangible damages but compensation the arbitrators determine the company could potentially have made. The administration might be compelled to abandon its policy. It becomes discouraged from passing future laws of a similar nature, for fear of facing litigation.

A Process Spiralling Out of Control

Record numbers of disputes are being brought, as companies learn from each other, and hedge funds finance suits in exchange for a cut of the takings. The outcome? Democratic sovereignty and democratic governance are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the choices made by legislatures is that this stipulation has been incorporated – without public consent, and often in a climate of extreme secrecy – into international trade agreements.

A Specific Instance: The UK Coalmine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer ruled that schemes to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine would have had no consequence on climate commitments. The Labour government later cancelled the licence the former government had granted. Today, this victory faces being overturned by an secret arbitration panel reporting to no one but the corporations bringing the case.

During August, a corporate entity whose ultimate owners are located in the tax haven initiated proceedings challenging the UK government. Last week a arbitration panel in the US capital was convened to hear it.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had received permission to proceed. The public has no idea how much this sum represents. Which individual is representing it in opposition to the British government? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The state passes a law, the high court upholds it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coalmine case was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case to date, but it appears probable that he may employ the tribunal to contest the penalties the UK levied against him after the war in Ukraine. He has filed a claim against another European state for this reason, claiming sixteen billion dollars: an amount representing half government’s yearly budget. Part of the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars contend that the EU’s delay in using frozen state funds as guarantee for its financial support package stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations may be obstructing the funds Ukraine urgently requires.

Empty Promises and Growing Risks

Politicians promised that these scenarios were not possible. Previously, a former prime minister, promoting the most significant and hazardous of all such treaties, told us: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” A consultant on this matter described critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about such legal actions. Warnings that “when companies begin to understand the power bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were met with scepticism.

That prediction has come to pass. In the current period, fossil fuel and extraction companies have lodged a record number of claims against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – official measures to prevent global warming. Companies have to date won vast sums by using ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP