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How do you reckon our political system works? Perhaps similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills become law. The law is upheld by the courts. End of story. Yet, that was how it operated in the past. Not anymore.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, or the billionaires behind them, can sue governments for the policies they pass, at private courts made up of commercial attorneys. These proceedings take place behind closed doors. Unlike our courts, these bodies allow no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even enterprises operating from this country. They are open solely for businesses based overseas.

If a tribunal determines that a law or policy could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These awards are based not on real financial harm but money the panel members decide the company could potentially have made. The government might be compelled to rescind the measure. It becomes deterred from enacting future policies in that area, worried about being sued.

A Process Spiralling Out of Control

Historically high figures of legal actions are being filed, as firms take cues from each other, and investment funds bankroll lawsuits in exchange for a cut of the takings. The consequence? Democratic sovereignty and democracy are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the rulings made by legislatures is that this stipulation has been inserted – absent public approval, and often in an atmosphere of total confidentiality – inside bilateral investment treaties.

A Real-World Case: The UK Coal Mine

Twelve months ago, activists secured a significant win at the High Court. The judge found that plans to dig the first deep coalmine in the UK for 30 years, in northwest England, had been wrongly permitted by the previous government, which had agreed to the questionable argument that the mine would have no consequence on our carbon budgets. The Labour government subsequently revoked the licence the Tories had granted. Currently, this success faces being overturned by an foreign court answering to no one but the companies filing the suit.

During August, a company whose final controllers are located in the tax haven filed a lawsuit against the UK government. Recently a dispute settlement body in Washington DC was set up to consider the case.

This firm is litigating against the UK for the money it might have made if the mine had been allowed to commence operations. Citizens have no clear indication how much this could amount to. Who is representing it in opposition to the state? A sitting MP, and ex-law officer in the Conservative government, that great patriot the MP. The administration passes a law, the domestic court validates it, then a foreign company disputes it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coalmine case was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case at present, but it is highly possible that he will utilise the ISDS mechanism to contest the restrictions the UK levied against him following the Russian aggression. He has filed a claim against a small nation for this reason, seeking $16bn: half that government’s yearly budget. Part of the counsel representing him there? Cherie Blair, married to the former British prime minister.

Legal experts argue that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Mounting Risks

The public was told that such things could not occur. Years ago, a former prime minister, promoting the largest and riskiest of all investment pacts, told us: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” A consultant on this issue labelled activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries should be concerned by such legal actions. Predictions that “when companies start to realise the power bestowed upon them, they will turn their attention from the weak nations to the developed economies” were dismissed with widespread derision.

That threat has come to pass. This year, energy and extraction companies have initiated a record number of suits against nations both wealthy and developing, opposing – similar to the Whitehaven project – official measures to prevent environmental catastrophe. Companies have thus far won $114bn through ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP