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Can you perceive our political system operates? It could be along the lines of this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. End of story. However, that used to be how it operated in the past. No longer.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, and the wealthy individuals that control them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals staffed by business advocates. Such disputes are conducted behind closed doors. Unlike our courts, these panels allow no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even businesses headquartered in this country. The door is open exclusively to corporations operating from foreign soil.

Should an arbitration panel finds that a legislative action might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, even billions.

These sums represent not tangible damages but funds the tribunal officials decide the company could potentially have made. The government could be forced to drop the legislation. It will be deterred from passing future laws in that area, for fear of being sued.

A Process Running Rampant

Historically high figures of legal actions are being brought, as corporations take cues from each other, and private equity bankroll lawsuits in return for a portion of the awards. The result? National sovereignty and popular rule are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the rulings taken by elected bodies is that this provision has been written – absent public approval, and typically amid an atmosphere of total confidentiality – within trade treaties.

A Real-World Case: The UK Coalmine

A year ago, activists won a great victory at the senior court. The judge found that schemes to excavate the first deep coalmine in the UK for three decades, in northwest England, were unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have no impact on our carbon budgets. The new government subsequently revoked the permission the Tories had issued. Today, this success could be compromised by an foreign court reporting to no one but the entities bringing the case.

During August, a firm whose ultimate owners are based in the offshore financial centre filed a lawsuit against the UK government. Recently a arbitration panel in the United States was set up to hear it.

The company is suing the UK for the profits it would have generated if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. What legal team is acting on its behalf challenging the British government? A sitting MP, and former attorney-general in the Conservative government, that great patriot the MP. The state passes a law, the national judiciary supports it, then a overseas corporation challenges it through an secretive arbitration panel, and a sitting MP represents its behalf.

The Russian Challenge

Concurrently that the tribunal on the coal mine dispute was established, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case to date, but it appears probable that he’ll use the arbitration process to contest the penalties the UK levied against him subsequent to the Russian aggression. He has initiated proceedings against a small nation on these grounds, seeking a colossal sum: half that nation's yearly budget. Included in the counsel on his side? the wife of a former prime minister, married to the former British prime minister.

International law scholars believe that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments could be blocking the finance Ukraine desperately needs.

Misleading Claims and Escalating Risks

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, promoting the largest and riskiest of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has never been a issue in the past.” An adviser on this issue described activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states needed to fear such legal actions. Predictions that “as corporations start to realise the influence they’ve been granted, they will turn their attention from the poorer states to the strong ones” were dismissed with scepticism.

That warning is now a reality. In the current period, oil and gas and mining firms have filed a record number of cases against nations across the economic spectrum, contesting – similar to the Whitehaven project – government attempts to halt global warming. Companies have thus far won $114bn via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP