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What is your reckon our political system functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills become law. The law are enforced 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, international firms, or the wealthy individuals that control them, can sue nation states for the regulations they pass, at secret arbitration panels composed of business advocates. The cases take place in secret. Differing from national judiciaries, these panels provide no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, nor can our government, including enterprises headquartered in this country. The door is open exclusively to businesses operating from foreign soil.

If a tribunal rules that a legislative action could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions, running into billions.

These awards are based not on tangible damages but money the tribunal officials conclude the company could potentially have made. The state may have to rescind the measure. It becomes discouraged from enacting future policies in that area, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Record numbers of legal actions are being filed, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the settlements. The result? Democratic sovereignty and popular rule are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the rulings made by legislatures is that this stipulation has been incorporated – absent public approval, and typically amid a climate of profound opacity – into trade treaties.

A Real-World Example: The Whitehaven Coal Mine

Last year, a conservation group secured a significant win at the high court. The justice ruled that proposals to open the first new deep coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine could have no impact on national carbon targets. The new government subsequently revoked the licence the previous administration had approved. Today, this success is under threat by an offshore tribunal answering to only the companies petitioning it.

In August, a firm whose final controllers reside in the Cayman Islands lodged a claim versus the UK government. Recently a arbitration panel in the US capital was set up to hear it.

This firm is litigating against the UK for the money it would have generated if the mine had been allowed to commence operations. We have little idea how much this could amount to. Which individual is acting on its behalf against the state? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a international entity disputes it through an secretive arbitration panel, and a elected official works for its behalf.

A Sanctions Lawsuit

On the same day that the court on the coal mine dispute was established, information emerged from a ministerial statement 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 may employ the ISDS mechanism to fight the penalties the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against another European state with similar intent, seeking sixteen billion dollars: equivalent to half of nation's yearly budget. Included in the counsel representing him there? Cherie Blair, wife of the ex-UK leader.

Legal experts argue that the EU’s hesitation in leveraging immobilised state funds as security for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over elected governments might be preventing the finance Ukraine urgently requires.

Empty Promises and Growing Threats

We were assured that such things could not occur. In 2014, a senior politician, advocating for the biggest and most dangerous of all these agreements, stated: “We’ve signed trade deal upon trade deal and there has not been a problem in the past.” An adviser on this matter accused critics of “scaremongering … in reality, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations had to worry about ISDS claims. Predictions that “once firms grasp the authority they now possess, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with general mockery.

That threat is now a reality. Recently, oil and gas and extraction companies have lodged a record number of claims against nations rich and poor, challenging – as in the case of the UK mine – state efforts to stop global warming. Firms have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP