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How do you understand our political system functions? It could be similar to this. We elect MPs. They vote on bills. When a majority is obtained, the bills become law. Legislation is maintained by the courts. Simple as that. Yet, that was how it used to work. Not anymore.

The Emergence of Offshore Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs that control them, can sue elected administrations for the laws they pass, at offshore tribunals staffed by commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or oversight by judges. You or I cannot take a case to them, nor can our government, or even enterprises headquartered in this country. The door is open exclusively to businesses based overseas.

When a secret court determines that a government measure may compromise the corporation’s projected profits, it can award damages of hundreds of millions, running into billions.

This compensation are based not on actual losses but funds the panel members conclude the company might otherwise have made. The state may have to drop the legislation. It will be hesitant to enacting future policies in that area, due to the risk of facing litigation.

A Process Running Rampant

Record numbers of disputes are being filed, as companies take cues from each other, and investment funds fund legal actions in exchange for a portion of the settlements. The result? Democratic sovereignty and democracy are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the decisions taken by legislatures is that this stipulation has been written – without democratic mandate, and often in a climate of total confidentiality – within trade treaties.

A Specific Instance: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The presiding officer found that schemes to open the first major coal mine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine could have no impact on national carbon targets. The Labour government subsequently revoked the licence the former government had approved. Currently, this success faces being overturned by an secret arbitration panel reporting to exclusively the entities petitioning it.

Last August, a firm whose ultimate owners reside in the tax haven initiated proceedings against the UK government. Last week a dispute settlement body in the US capital was established to consider the case.

The company is litigating against the UK for the profits it could have earned if the mine had been allowed to go ahead. We have no idea how much this sum represents. What legal team is representing it against the UK administration? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot the MP. The administration makes a decision, the national judiciary upholds it, then a international entity contests it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

A Sanctions Challenge

On the same day that the panel on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know nothing of the case to date, but it is highly possible that he’ll use the arbitration process to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already started suing another European state for this reason, seeking a colossal sum: equivalent to half of government’s yearly income. Among the legal team on his side? the wife of a former prime minister, married to the former British prime minister.

Legal experts argue that the EU’s procrastination in utilising seized state funds as security for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments might be preventing the funds Ukraine desperately needs.

Empty Promises and Mounting Threats

We were assured that such things wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all investment pacts, declared: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this topic labelled critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations should be concerned by such legal actions. Cautionary notes that “once firms grasp the authority they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were greeted by scepticism.

That prediction is now a reality. This year, fossil fuel and mining firms have filed a unprecedented number of suits against nations rich and poor, contesting – like the example of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP