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Can you perceive our political system works? Perhaps something like this. We elect MPs. They vote on bills. When a majority is secured, the bills become law. Legislation are enforced by the courts. End of story. Yet, that was how it used to work. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs who own them, have the power to sue governments for the policies they pass, at secret arbitration panels staffed by business advocates. The cases are held behind closed doors. In contrast to domestic courts, these panels grant no right of appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, including enterprises based in this country. Access is granted exclusively to businesses operating from foreign soil.

If a tribunal finds that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of vast sums, even billions.

These sums constitute not tangible damages but money the panel members conclude the company would perhaps have made. The government may have to rescind the measure. It becomes discouraged from introducing similar legislation along the same lines, for fear of facing litigation.

A System Spiralling Out of Control

Record numbers of disputes are being brought, as companies learn from each other, and private equity finance suits in exchange for a share of the settlements. The outcome? National sovereignty and democratic governance are now too costly.

The system is referred to 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 clause has been incorporated – absent public approval, and typically amid a climate of profound opacity – inside trade treaties.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, activists won a great victory at the senior court. The justice ruled that schemes to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had zero effect on national carbon targets. The incoming administration later cancelled the consent the former government had approved. Currently, this legal outcome faces being overturned by an secret arbitration panel accountable to exclusively the entities petitioning it.

During August, a firm whose final controllers are based in the tax haven filed a lawsuit challenging the UK government. Recently a arbitration panel in the US capital was set up to consider the case.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had received permission to commence operations. Citizens have no idea how much this might be. What legal team is acting on its behalf challenging the UK administration? A sitting MP, and former attorney-general in the Conservative government, that great patriot Geoffrey Cox. The administration passes a law, the domestic court upholds it, then a international entity disputes it through an undemocratic arbitration panel, and a elected official works for its behalf.

The Russian Case

Concurrently that the tribunal on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK enacted against him following the war in Ukraine. He has previously started suing Luxembourg for this reason, claiming $16bn: half that state's yearly budget. Included in the counsel representing him there? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars believe that the EU’s hesitation in utilising seized Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, undemocratic power over democratic administrations could be blocking the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

The public was told that such things could not occur. Previously, a senior politician, promoting the most significant and hazardous of all such treaties, told us: “We’ve signed trade deal after trade deal and we have never seen a case in the past.” An expert on this matter described campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear these lawsuits. Predictions that “once firms start to realise the authority they now possess, they will redirect their efforts from the weak nations to the developed economies” were greeted by widespread derision.

That prediction has now materialised. This year, energy and resource corporations have initiated a historic level of claims against nations rich and poor, opposing – similar to the Cumbrian coalmine – official measures to halt environmental catastrophe. Companies have so far won $114bn via ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP