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What is your reckon our political system operates? Perhaps similar to this. We elect MPs. They vote on bills. If a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. That's it. Yet, that’s how it operated in the past. Those days are over.

The Advent of Offshore Arbitration Panels

In the modern era, overseas companies, along with the billionaires behind them, are able to litigate against nation states for the laws they pass, at secret arbitration panels composed of business advocates. The cases are held away from public scrutiny. Unlike our courts, these panels provide no right of appeal or oversight by judges. You or I cannot take a case to them, nor can our government, including enterprises based in this country. They are open exclusively to businesses based overseas.

If a tribunal rules that a legislative action might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

These awards constitute not real financial harm but money the panel members determine the company might otherwise have made. The administration may have to rescind the measure. It is deterred from passing future laws along the same lines, worried about being sued.

A System Running Rampant

Historically high figures of disputes are being filed, as firms take cues from each other, and investment funds fund legal actions for a share of a share of the takings. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the choices made by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under a climate of profound opacity – into bilateral investment treaties.

A Concrete Case: The UK Coal Mine

Twelve months ago, activists achieved a major legal triumph at the High Court. The justice determined that schemes to open the first deep coalmine in the UK for a generation, in Cumbria, were illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine could have zero effect on national carbon targets. The incoming administration subsequently revoked the licence the Tories had granted. Currently, this victory is under threat by an offshore tribunal reporting to exclusively the companies bringing the case.

During August, a firm whose final controllers reside in the tax haven initiated proceedings versus the UK government. Recently a arbitration panel in the US capital was convened to hear it.

This firm is seeking compensation from the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have little idea how much this could amount to. Which individual is representing it challenging the UK administration? A sitting MP, and ex-law officer in the previous government, that great patriot the MP. The administration enacts a policy, the domestic court supports it, then a international entity disputes it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the tribunal on the coal mine dispute was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he’ll use the arbitration process to contest the sanctions the UK levied against him following the war in Ukraine. He has previously filed a claim against a small nation with similar intent, demanding $16bn: equivalent to half of nation's annual revenue. Among the counsel on his side? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts argue that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments could be blocking the funds Ukraine desperately needs.

Misleading Claims and Growing Risks

The public was told that such things were not possible. In 2014, a government leader, advocating for the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” An adviser on this topic labelled critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “when companies grasp the power they now possess, they will shift their focus from the poorer states to the wealthy nations” were met with widespread derision.

That warning has come to pass. In the current period, fossil fuel and mining firms have filed a record number of suits against nations both wealthy and developing, contesting – as in the case of the UK mine – government attempts to prevent environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP