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How do you reckon our political system works? Maybe along the lines of this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills pass into law. Legislation are enforced by the courts. End of story. However, that was how it operated in the past. Not anymore.

The Advent of Shadow Arbitration Panels

Today, international firms, along with the billionaires behind them, can sue governments for the policies they pass, at offshore tribunals composed of commercial attorneys. These proceedings are held in secret. Unlike our courts, these bodies provide no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, including companies operating from this country. Access is granted solely for corporations based overseas.

If a tribunal finds that a government measure could harm the corporation’s projected profits, it may order compensation of hundreds of millions, potentially billions.

These sums are based not on real financial harm but compensation the panel members decide the company could potentially have made. The government may have to abandon its policy. It is hesitant to introducing similar legislation along the same lines, worried about being sued.

A System Growing Exponentially

Unprecedented levels of disputes are being brought, as companies learn from each other, and private equity fund legal actions in exchange for a portion of the settlements. The outcome? National sovereignty and democratic governance are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices enacted by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid an atmosphere of profound opacity – within trade treaties.

A Concrete Case: The Cumbrian Coalmine

A year ago, environmental campaigners secured a significant win at the high court. The presiding officer determined that plans to open the first new deep coal mine in the UK for 30 years, in Cumbria, were illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have had no impact on climate commitments. The new government then withdrew the permission the Tories had granted. Currently, this success is under threat by an offshore tribunal answering to only the companies filing the suit.

Last August, a firm whose final controllers are based in the Cayman Islands initiated proceedings versus the UK government. Last week a tribunal in the US capital was established to adjudicate on it.

This firm is litigating against the UK for the profits it would have generated if the mine had received permission to proceed. We have little idea how much this could amount to. Which individual is representing it against the UK administration? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the high court supports it, then a international entity challenges it through an undemocratic private court, and a member of our parliament acts on its behalf.

The Russian Lawsuit

Simultaneously that the panel on the coal mine dispute was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it appears probable that he may employ the tribunal to fight the restrictions the UK levied against him following the war in Ukraine. He has previously started suing Luxembourg on these grounds, claiming $16bn: an amount representing half state's yearly income. Among the counsel on his side? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in using frozen state funds as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, secretive influence over sovereign states may be obstructing the finance Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that such things could not occur. In 2014, a government leader, advocating for the most significant and hazardous of all investment pacts, stated: “The UK has signed trade deal after trade deal and we have never seen a case in the past.” An expert on this matter accused campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Warnings that “as corporations start to realise the influence bestowed upon them, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with scepticism.

That prediction has come to pass. This year, fossil fuel and resource corporations have initiated a record number of claims against nations both wealthy and developing, challenging – like the example of the UK mine – government attempts to halt climate breakdown. Firms have to date won vast sums via ISDS, of which energy giants have secured the majority. That represents the combined GDP