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Can you reckon our political system operates? Maybe similar to this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills become law. Statutes is maintained by the courts. End of story. Yet, that was how it operated in the past. Not anymore.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, or the oligarchs behind them, have the power to sue governments for the policies they pass, at private courts composed of corporate lawyers. Such disputes are held behind closed doors. Differing from national judiciaries, these bodies provide no avenue for appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, including businesses headquartered in this country. They are open only to corporations based overseas.

If a tribunal determines that a law or policy might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions, potentially billions.

This compensation constitute not tangible damages but compensation the tribunal officials decide the company would perhaps have made. The government may have to rescind the measure. It is deterred from enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as firms learn from each other, and investment funds fund legal actions in return for a portion of the takings. The outcome? Democratic sovereignty and democracy are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the decisions made by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid an atmosphere of total confidentiality – into international trade agreements.

A Specific Example: The UK Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The judge ruled that plans to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have had no impact on our carbon budgets. The new government later cancelled the licence the former government had issued. Currently, this success is under threat by an foreign court accountable to only the companies bringing the case.

During August, a firm whose final controllers are based in the offshore financial centre lodged a claim challenging the UK government. Recently a tribunal in the United States was established to adjudicate on it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. What legal team is representing it in opposition to the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The state makes a decision, the domestic court upholds it, then a foreign company contests it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case to date, but it seems likely that he will utilise the ISDS mechanism to challenge the restrictions the UK imposed on him after the war in Ukraine. He has previously filed a claim against Luxembourg with similar intent, demanding a colossal sum: an amount representing half government’s annual revenue. Part of the lawyers on his side? a prominent lawyer, spouse of the previous PM.

International law scholars believe that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its financial support package is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments may be obstructing the finance Ukraine urgently requires.

Empty Promises and Growing Risks

We were assured that these scenarios wouldn’t happen. Years ago, a senior politician, advocating for the most significant and hazardous of all these agreements, told us: “We’ve signed trade deal upon trade deal and there has never been a issue in the past.” A consultant on this issue accused critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “as corporations start to realise the power bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were met with widespread derision.

That prediction has now materialised. Recently, energy and mining firms have filed a historic level of suits against nations across the economic spectrum, contesting – similar to the Whitehaven project – official measures to prevent global warming. Corporations have so far won vast sums via ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP