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Can you reckon our political system works? Perhaps similar to this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. The law are enforced by the courts. End of story. Well, that’s how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Nowadays, overseas companies, and the wealthy individuals behind them, can sue governments for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes take place away from public scrutiny. In contrast to domestic courts, these tribunals grant no right of appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even enterprises operating from this country. They are open only to corporations based overseas.

Should an arbitration panel rules that a legislative action could harm the corporation’s anticipated profits, it may order damages of vast sums, even billions.

These sums are based not on actual losses but compensation the panel members conclude the company could potentially have made. The administration may have to abandon its policy. It will be deterred from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of cases are being initiated, as companies learn from each other, and hedge funds fund legal actions for a share of a cut of the awards. The consequence? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the decisions made by elected bodies is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of profound opacity – inside international trade agreements.

A Real-World Instance: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the high court. The judge found that proposals to dig the first new deep coal mine in the UK for a generation, in northwest England, had been wrongly permitted by the previous government, which had agreed to the questionable argument that the mine would have had zero effect on climate commitments. The new government subsequently revoked the licence the former government had approved. Now, this legal outcome could be compromised by an offshore tribunal reporting to only the entities petitioning it.

Last August, a firm whose ultimate owners are based in the tax haven lodged a claim versus the UK government. Last week a tribunal in the United States was established to consider the case.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have no clear indication how much this sum represents. What legal team is acting on its behalf 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 makes a decision, the national judiciary supports it, then a international entity challenges it through an unaccountable offshore tribunal, and a elected official works for its behalf.

A Sanctions Challenge

On the same day that the panel on the coal mine dispute was convened, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it seems likely that he’ll use the arbitration process to fight the sanctions the UK enacted against him following the war in Ukraine. He has previously started suing Luxembourg on these grounds, claiming a colossal sum: equivalent to half of nation's yearly income. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the previous PM.

Trade specialists believe that the EU’s delay in leveraging immobilised state funds as collateral for its financial support package arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations may be obstructing the money Ukraine desperately needs.

Empty Promises and Mounting Risks

The public was told that such things wouldn’t happen. Previously, a government leader, promoting the most significant and hazardous of all such treaties, told us: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this issue labelled critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear such legal actions. Cautionary notes that “as corporations grasp the power bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with widespread derision.

That warning has now materialised. Recently, energy and extraction companies have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – official measures to halt global warming. Firms have to date won $114bn via ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP