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What is your reckon our system of government operates? Maybe something like this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. The law is upheld by the courts. Simple as that. Yet, that was how it used to work. Those days are over.

The Advent of Secret Arbitration Panels

In the modern era, overseas companies, and the billionaires who own them, can sue nation states for the laws they pass, at private courts staffed by corporate lawyers. These proceedings take place in secret. Differing from national judiciaries, these panels provide no opportunity to appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. The door is open only to businesses based overseas.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it may order damages of vast sums, running into billions.

These sums represent not real financial harm but money the arbitrators conclude the company might otherwise have made. The state could be forced to abandon its policy. It is hesitant to passing future laws along the same lines, worried about incurring a lawsuit.

A Process Running Rampant

Record numbers of disputes are being brought, as firms take cues from each other, and hedge funds finance suits in exchange for a cut of the awards. The outcome? Sovereignty and democratic governance are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the rulings enacted by legislatures is that this stipulation has been written – without democratic mandate, and frequently under conditions of profound opacity – within international trade agreements.

A Real-World Example: The UK Coalmine

A year ago, environmental campaigners won a great victory at the high court. The justice found that proposals to excavate the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine could have no consequence on national carbon targets. The Labour government then withdrew the permission the former government had granted. Today, this legal outcome could be compromised by an offshore tribunal reporting to no one but the corporations petitioning it.

Last August, a firm whose ultimate owners are based in the Cayman Islands filed a lawsuit challenging the UK government. Last week a dispute settlement body in the US capital was convened to hear it.

This firm is suing the UK for the money it might have made if the mine had received permission to commence operations. The public has no clear indication how much this might be. Who is acting on its behalf challenging the British government? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The government passes a law, the national judiciary upholds it, then a overseas corporation challenges it through an unaccountable private court, and a sitting MP works for its behalf.

The Russian Lawsuit

Simultaneously that the panel on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case so far, but it is highly possible that he will utilise the tribunal to challenge the restrictions the UK levied against him after the war in Ukraine. He has previously filed a claim against another European state with similar intent, seeking a colossal sum: equivalent to half of state's yearly budget. Part of the counsel representing him there? a prominent lawyer, married to the ex-UK leader.

Legal experts believe that the EU’s delay in using frozen state funds as security for its financial support package is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Growing Threats

Politicians promised that these events were not possible. Previously, a former prime minister, championing the biggest and most dangerous of all these agreements, declared: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” An expert on this issue accused critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about such legal actions. Warnings that “once firms start to realise the power they’ve been granted, they will turn their attention from the weak nations to the wealthy nations” were met with widespread derision.

That prediction is now a reality. In the current period, oil and gas and mining firms have lodged a unprecedented number of cases against nations both wealthy and developing, challenging – as in the case of the Whitehaven project – government attempts to halt global warming. Corporations have so far won vast sums via ISDS, of which oil majors have obtained the majority. That represents the combined GDP