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Can you reckon our political system functions? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills pass into law. Statutes is upheld by the courts. End of story. However, that used to be how it once functioned. No longer.

The Advent of Offshore Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals that control them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals made up of corporate lawyers. The cases are conducted in secret. Unlike our courts, these bodies provide no opportunity to appeal or oversight by judges. The general public cannot take a case to them, nor can our government, or even enterprises operating from this country. Access is granted exclusively to entities operating from foreign soil.

When a secret court determines that a legislative action may compromise the corporation’s projected profits, it has the power to grant damages of hundreds of millions, even billions.

This compensation constitute not tangible damages but money the panel members conclude the company would perhaps have made. The government could be forced to rescind the measure. It is hesitant to enacting future policies in that area, due to the risk of facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being filed, as companies observe each other, and private equity bankroll lawsuits in exchange for a portion of the takings. The result? Democratic sovereignty and popular rule are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the decisions made by parliaments is that this stipulation has been inserted – without democratic mandate, and often in conditions of profound opacity – within bilateral investment treaties.

A Real-World Case: The UK Coalmine

Last year, activists secured a significant win at the senior court. The presiding officer ruled that schemes to open the first deep coalmine in the UK for 30 years, in northwest England, were illegally sanctioned by the previous government, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The new government later cancelled the consent the former government had approved. Now, this victory could be compromised by an offshore tribunal reporting to only the companies petitioning it.

During August, a corporate entity whose final controllers reside in the Cayman Islands lodged a claim challenging the UK government. Recently a dispute settlement body in the United States was established to consider the case.

This firm is suing the UK for the revenue it might have made if the mine had been allowed to proceed. We have no clear indication how much this might be. What legal team is serving as its counsel in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The state passes a law, the national judiciary upholds it, then a foreign company disputes it through an secretive private court, and a sitting MP acts on its behalf.

An Oligarch's Challenge

On the same day that the court on the mining lawsuit was appointed, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it seems likely that he will utilise the arbitration process to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, seeking $16bn: half that government’s yearly income. Included in the lawyers on his side? Cherie Blair, married to the ex-UK leader.

Legal experts argue that the EU’s hesitation in utilising seized oligarchs' funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over sovereign states might be preventing the finance Ukraine critically depends on.

Misleading Claims and Growing Threats

Politicians promised that these scenarios could not occur. Years ago, a senior politician, advocating for the biggest and most dangerous of all these agreements, stated: “The UK has signed trade deal upon trade deal and we have never seen a case in the past.” An expert on this matter described critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “as corporations start to realise the power they now possess, they will shift their focus from the poorer states to the developed economies” were greeted by widespread derision.

That prediction has now materialised. In the current period, fossil fuel and extraction companies have filed a unprecedented number of suits against nations both wealthy and developing, contesting – like the example of the Whitehaven project – government attempts to stop climate breakdown. Corporations have so far won $114bn by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP