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Can you reckon our political system operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills become law. The law is maintained by the courts. End of story. Well, that was how it used to work. No longer.

The Emergence of Offshore Arbitration Panels

In the modern era, foreign corporations, along with the billionaires behind them, are able to litigate against nation states for the laws they pass, at offshore tribunals composed of business advocates. The cases are held in secret. Differing from national judiciaries, these tribunals provide no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises operating from this country. They are open only to businesses registered abroad.

Should an arbitration panel finds that a law or policy may compromise the corporation’s projected profits, it may order financial penalties of vast sums, even billions.

These awards represent not actual losses but funds the arbitrators determine the company might otherwise have made. The state might be compelled to abandon its policy. It will be deterred from enacting future policies in that area, worried about facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being brought, as companies observe each other, and hedge funds fund legal actions in return for a portion of the awards. The consequence? Democratic sovereignty and popular rule are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the choices made by elected bodies is that this clause has been inserted – without democratic mandate, and often in a climate of total confidentiality – inside trade treaties.

A Real-World Case: The UK Coal Mine

Last year, activists won a great victory at the High Court. The presiding officer ruled that proposals to open the first major coal mine in the UK for 30 years, in Cumbria, were illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have had no consequence on climate commitments. The new government later cancelled the licence the former government had granted. Currently, this victory faces being overturned by an offshore tribunal accountable to only the entities bringing the case.

During August, a company whose ultimate owners are located in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in Washington DC was established to consider the case.

The company is litigating against the UK for the revenue it could have earned if the mine had been permitted to proceed. The public has little idea how much this sum represents. Who is serving as its counsel in opposition to the state? An elected representative, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The administration enacts a policy, the high court supports it, then a international entity disputes it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case at present, but it appears probable that he’ll use the arbitration process to contest the penalties the UK imposed on him after the Russian aggression. He has previously started suing a small nation for this reason, demanding $16bn: an amount representing half state's yearly budget. Part of the counsel representing him there? Cherie Blair, wife of the ex-UK leader.

Trade specialists argue that the EU’s procrastination in using frozen Russian assets as guarantee for its financial support package arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments might be preventing the finance Ukraine desperately needs.

Empty Promises and Mounting Risks

The public was told that such things could not occur. In 2014, a government leader, championing the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” A consultant on this topic labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about such legal actions. Predictions that “as corporations begin to understand the power they’ve been granted, they will turn their attention from the poorer states to the developed economies” were met with scepticism.

That threat has come to pass. In the current period, fossil fuel and resource corporations have initiated a record number of cases against nations rich and poor, opposing – similar to the UK mine – government attempts to stop environmental catastrophe. Firms have to date won $114bn through ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP