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How do you perceive our political system functions? Perhaps along the lines of this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills become law. Legislation is maintained by the courts. Simple as that. Yet, that was how it operated in the past. No longer.

The Advent of Offshore Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs who own them, have the power to sue governments for the policies they pass, at private courts composed of corporate lawyers. These proceedings take place behind closed doors. Unlike our courts, these bodies provide no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, including enterprises based in this country. Access is granted only to entities operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s expected profits, it has the power to grant damages of vast sums, running into billions.

These awards constitute not tangible damages but compensation the tribunal officials conclude the company might otherwise have made. The government could be forced to rescind the measure. It becomes discouraged from passing future laws in that area, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of disputes are being filed, as companies take cues from each other, and private equity finance suits in return for a cut of the awards. The outcome? National sovereignty and democracy are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede a country's own laws and the decisions taken by parliaments is that this provision has been written – without public consent, and frequently under conditions of total confidentiality – inside bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

Twelve months ago, activists secured a significant win at the high court. The judge determined that schemes to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine could have no impact on climate commitments. The incoming administration subsequently revoked the permission the former government had approved. Now, this success could be compromised by an secret arbitration panel accountable to no one but the entities bringing the case.

Last August, a firm whose beneficial owners reside in the offshore financial centre initiated proceedings challenging the UK government. The previous week a arbitration panel in the US capital was set up to hear it.

The company is seeking compensation from the UK for the profits it would have generated if the mine had received permission to proceed. Citizens have little idea how much this sum represents. Who is representing it in opposition to the British government? A member of parliament, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a foreign company disputes it through an secretive private court, and a sitting MP works for its behalf.

An Oligarch's Case

Simultaneously that the panel on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case to date, but it seems likely that he may employ the arbitration process to challenge the penalties the UK enacted against him after the invasion of Ukraine. He has filed a claim against Luxembourg with similar intent, demanding a colossal sum: an amount representing half government’s yearly income. Included in the lawyers acting for him in that case? Cherie Blair, wife of the previous PM.

Trade specialists contend that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over sovereign states could be blocking the money Ukraine urgently requires.

False Assurances and Mounting Threats

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, promoting the most significant and hazardous of all these agreements, declared: “Britain has agreed to trade agreement after trade deal and we have never seen a problem in the past.” A consultant on this topic described activists of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “once firms grasp the influence they’ve been granted, they will shift their focus from the weak nations to the strong ones” were met with general mockery.

That warning is now a reality. In the current period, oil and gas and extraction companies have lodged a record number of claims against nations rich and poor, opposing – as in the case of the Whitehaven project – state efforts to stop climate breakdown. Corporations have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained the majority. That equates to the combined GDP