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What is your perceive our political system functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. If a majority is secured, the bills become law. Statutes is maintained by the courts. End of story. However, that’s how it operated in the past. Those days are over.

The Rise of Offshore Arbitration Panels

In the modern era, international firms, or the wealthy individuals behind them, have the power to sue nation states for the policies they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these panels provide no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, nor can our government, including companies based in this country. Access is granted only to businesses operating from foreign soil.

Should an arbitration panel determines that a legislative action might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions, running into billions.

This compensation are based not on real financial harm but money the panel members determine the company would perhaps have made. The government may have to abandon its policy. It is discouraged from introducing similar legislation in that area, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms learn from each other, and private equity bankroll lawsuits for a share of a cut of the takings. The result? Sovereignty and democratic governance are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the choices made by elected bodies is that this stipulation has been inserted – absent public approval, and typically amid a climate of profound opacity – inside trade treaties.

A Real-World Example: The Whitehaven Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The justice determined that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine would have no impact on national carbon targets. The new government later cancelled the licence the former government had approved. Today, this legal outcome could be compromised by an foreign court accountable to only the companies petitioning it.

Last August, a company whose final controllers reside in the offshore financial centre initiated proceedings challenging the UK government. Last week a tribunal in the US capital was convened to consider the case.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to proceed. Citizens have no clear indication how much this could amount to. Who is representing it challenging the British government? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The administration enacts a policy, the high court validates it, then a international entity disputes it through an secretive offshore tribunal, and a elected official works for its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coal mine dispute was convened, we learned from a ministerial statement 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 may employ the arbitration process to challenge the restrictions the UK levied against him following the invasion of Ukraine. He has previously filed a claim against another European state for this reason, claiming a colossal sum: equivalent to half of state's yearly budget. Part of the legal team acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars contend that the EU’s hesitation in utilising seized state funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that such things could not occur. Previously, a government leader, championing the most significant and hazardous of all these agreements, stated: “Britain has agreed to trade deal upon trade deal and there has never been a case in the past.” An expert on this matter described campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations should be concerned by these lawsuits. Warnings that “once firms begin to understand the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with widespread derision.

That prediction has now materialised. Recently, oil and gas and resource corporations have initiated a historic level of claims against nations rich and poor, challenging – like the example of the Whitehaven project – government attempts to prevent climate breakdown. Corporations have to date won $114bn through ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP