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How do you understand our political system operates? It could be similar to this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Legislation is upheld by the courts. End of story. Well, that used to be how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, and the billionaires that control them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held in secret. In contrast to domestic courts, these tribunals provide no right of appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises operating from this country. They are open solely for businesses operating from foreign soil.

When a secret court finds that a government measure may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

This compensation represent not tangible damages but compensation the tribunal officials conclude the company would perhaps have made. The state could be forced to rescind the measure. It will be deterred from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of cases are being initiated, as corporations observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the settlements. The consequence? Democratic sovereignty and democracy are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the decisions made by elected bodies is that this provision has been written – absent public approval, and typically amid a climate of profound opacity – within international trade agreements.

A Real-World Instance: The UK Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The presiding officer found that plans to excavate the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine would have had zero effect on our carbon budgets. The Labour government then withdrew the licence the former government had granted. Today, this victory could be compromised by an secret arbitration panel accountable to exclusively the companies petitioning it.

During August, a firm whose beneficial owners are located in the tax haven initiated proceedings challenging the UK government. Last week a tribunal in the United States was established to adjudicate on it.

The company is suing the UK for the revenue it would have generated if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. What legal team is representing it in opposition to the British government? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration makes a decision, the high court supports it, then a international entity contests it through an undemocratic arbitration panel, and a sitting MP represents its behalf.

A Sanctions Case

Simultaneously that the panel on the coalmine case was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case to date, but it is highly possible that he will utilise the tribunal to contest the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has initiated proceedings against another European state for this reason, seeking a colossal sum: half that nation's yearly budget. Part of the counsel acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists argue that the EU’s procrastination in utilising seized oligarchs' funds as security for its loan to Ukraine arises 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 sovereign states might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Costs

Politicians promised that these scenarios could not occur. Years ago, a senior politician, advocating for the biggest and most dangerous of all such treaties, told us: “Britain has agreed to investment treaty upon trade deal and there has not been a problem in the past.” A consultant on this issue labelled critics of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries needed to fear these lawsuits. Warnings that “as corporations begin to understand the influence bestowed upon them, they will turn their attention from the weak nations to the developed economies” were dismissed with widespread derision.

That warning has come to pass. In the current period, fossil fuel and resource corporations have lodged a record number of cases against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – official measures to stop global warming. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded the majority. That represents the combined GDP