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Can you understand our political system functions? It could be similar to this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. End of story. Well, that used to be how it operated in the past. Not anymore.

The Emergence of Offshore Tribunals

Today, international firms, and the oligarchs who own them, can sue governments for the policies they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are held away from public scrutiny. Differing from national judiciaries, these tribunals provide no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises operating from this country. They are open solely for corporations registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s projected profits, it may order damages of hundreds of millions of pounds, running into billions.

These sums are based not on tangible damages but money the panel members conclude the company would perhaps have made. The state might be compelled to rescind the measure. It is hesitant to enacting future policies along the same lines, for fear of facing litigation.

A System Running Rampant

Record numbers of legal actions are being brought, as companies observe each other, and hedge funds finance suits in exchange for a share of the awards. The consequence? Sovereignty and democracy are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings enacted by elected bodies is that this stipulation has been written – absent public approval, and typically amid conditions of profound opacity – inside trade treaties.

A Real-World Instance: The Whitehaven Coal Mine

Last year, activists achieved a major legal triumph at the High Court. The judge determined that proposals to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The incoming administration later cancelled the licence the Tories had granted. Now, this victory could be compromised by an secret arbitration panel reporting to only the corporations filing the suit.

Last August, a company whose beneficial owners reside in the tax haven lodged a claim challenging the UK government. The previous week a dispute settlement body in the US capital was convened to adjudicate on it.

The claimant is suing the UK for the money it could have earned if the mine had been allowed to go ahead. Citizens have little idea how much this sum represents. Who is serving as its counsel against the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The administration passes a law, the high court supports it, then a foreign company contests it through an unaccountable arbitration panel, and a elected official works for its behalf.

An Oligarch's Challenge

On the same day that the panel on the coal mine dispute was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case at present, but it seems likely that he’ll use the ISDS mechanism to contest the penalties the UK imposed on him after the invasion of Ukraine. He has already filed a claim against Luxembourg for this reason, demanding sixteen billion dollars: half that nation's yearly budget. Among the legal team on his side? a prominent lawyer, married to the ex-UK leader.

Legal experts believe that the EU’s procrastination in using frozen state funds as collateral for its financial support package is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over sovereign states might be preventing the funds Ukraine desperately needs.

False Assurances and Growing Threats

Politicians promised that these scenarios could not occur. Previously, a senior politician, promoting the largest and riskiest of all such treaties, stated: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” A consultant on this topic accused campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about such legal actions. Warnings that “once firms start to realise the authority they now possess, they will redirect their efforts from the poorer states to the developed economies” were met with scepticism.

That prediction has come to pass. Recently, fossil fuel and extraction companies have initiated a historic level of suits against nations both wealthy and developing, challenging – like the example of the UK mine – official measures to halt environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP