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Can you understand our political system works? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. Yet, that was how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, foreign corporations, or the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are held away from public scrutiny. Unlike our courts, these bodies allow no avenue for appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even companies based in this country. They are open only to businesses based overseas.

If a tribunal determines that a government measure may compromise the corporation’s expected profits, it can award damages of hundreds of millions, potentially billions.

These sums constitute not actual losses but funds the tribunal officials determine the company might otherwise have made. The state could be forced to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, due to the risk of being sued.

A System Spiralling Out of Control

Record numbers of legal actions are being filed, as corporations take cues from each other, and private equity bankroll lawsuits for a share of a portion of the awards. The result? Sovereignty and democratic governance are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the decisions taken by parliaments is that this provision has been incorporated – absent public approval, and typically amid conditions of total confidentiality – inside trade treaties.

A Specific Instance: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The presiding officer ruled that plans to dig the first major coal mine in the UK for 30 years, in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine would have had zero effect on national carbon targets. The new government later cancelled the consent the former government had approved. Now, this victory is under threat by an foreign court accountable to only the entities filing the suit.

During August, a corporate entity whose final controllers reside in the tax haven filed a lawsuit against the UK government. Last week a tribunal in the United States was convened to hear it.

The claimant is suing the UK for the money it could have earned if the mine had received permission to proceed. The public has little idea how much this sum represents. Which individual is representing it in opposition to the British government? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the high court validates it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Case

Simultaneously that the court on the coal mine dispute was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case so far, but it is highly possible that he may employ the tribunal to fight the penalties the UK levied against him after the war in Ukraine. He has already filed a claim against another European state for this reason, demanding $16bn: half that government’s yearly budget. Included in the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Legal experts contend that the EU’s delay in utilising seized oligarchs' funds as collateral for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine urgently requires.

Empty Promises and Growing Risks

The public was told that these events could not occur. In 2014, a former prime minister, championing the biggest and most dangerous of all such treaties, stated: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” An expert on this topic accused campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “when companies grasp the influence they now possess, they will redirect their efforts from the weak nations to the strong ones” were dismissed with scepticism.

That threat is now a reality. This year, fossil fuel and resource corporations have filed a historic level of claims against nations both wealthy and developing, opposing – like the example of the Whitehaven project – state efforts to halt global warming. Firms have so far won vast sums by using ISDS, of which energy giants have secured $84bn. That represents the combined GDP