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What is your understand our political system operates? Perhaps similar to this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Statutes are enforced by the courts. Simple as that. Well, that used to be how it used to work. Not anymore.

The Rise of Offshore Arbitration Panels

In the modern era, international firms, along with the oligarchs behind them, are able to litigate against nation states for the regulations they pass, at private courts composed of commercial attorneys. The cases are held behind closed doors. Unlike our courts, these tribunals provide no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, including companies headquartered in this country. They are open only to corporations registered abroad.

When a secret court rules that a government measure may compromise the corporation’s anticipated profits, it may order damages of vast sums, potentially billions.

These awards constitute not tangible damages but funds the arbitrators decide the company could potentially have made. The administration could be forced to rescind the measure. It becomes deterred from passing future laws of a similar nature, worried about being sued.

A System Running Rampant

Historically high figures of disputes are being brought, as firms observe each other, and private equity bankroll lawsuits in exchange for a portion of the takings. The outcome? National sovereignty and popular rule are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the choices taken by parliaments is that this clause has been inserted – without democratic mandate, and typically amid a climate of profound opacity – into international trade agreements.

A Concrete Case: The UK Coal Mine

Last year, a conservation group achieved a major legal triumph at the high court. The judge determined that plans to dig the first new deep coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the previous administration had issued. Now, this legal outcome is under threat by an foreign court answering to exclusively the companies filing the suit.

In August, a corporate entity whose final controllers are based in the Cayman Islands filed a lawsuit versus the UK government. Recently a tribunal in the United States was established to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to commence operations. Citizens have no idea how much this could amount to. Which individual is serving as its counsel against the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a international entity challenges it through an unaccountable private court, and a elected official works for its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he’ll use the arbitration process to fight the sanctions the UK levied against him after the war in Ukraine. He has initiated proceedings against a small nation for this reason, claiming sixteen billion dollars: an amount representing half government’s annual revenue. Among the lawyers on his side? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s delay in leveraging immobilised Russian assets as security for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over democratic administrations may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Growing Costs

We were assured that these scenarios could not occur. Previously, a government leader, advocating for the biggest and most dangerous of all such treaties, told us: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” An adviser on this topic labelled critics of “alarmism … in reality, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations should be concerned by ISDS claims. Warnings that “once firms grasp the power they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were dismissed with general mockery.

That threat is now a reality. Recently, fossil fuel and mining firms have initiated a historic level of cases against nations both wealthy and developing, challenging – like the example of the UK mine – state efforts to stop global warming. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured the majority. That represents the combined GDP