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Can you reckon our system of government functions? Maybe similar to this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills pass into law. Legislation is maintained by the courts. That's it. However, that was how it once functioned. No longer.

The Rise of Shadow Arbitration Panels

In the modern era, overseas companies, or the billionaires that control them, are able to litigate against elected administrations for the policies they pass, at secret arbitration panels composed of business advocates. The cases are held in secret. Unlike our courts, these tribunals provide no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, or even enterprises operating from this country. The door is open solely for businesses registered abroad.

If a tribunal finds that a legislative action could harm the corporation’s anticipated profits, it has the power to grant compensation of vast sums, running into billions.

These awards constitute not actual losses but money the tribunal officials conclude the company might otherwise have made. The government could be forced to rescind the measure. It becomes deterred from enacting future policies along the same lines, due to the risk of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of cases are being initiated, as firms take cues from each other, and hedge funds fund legal actions in return for a portion of the awards. The consequence? National sovereignty and democracy are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the choices taken by parliaments is that this provision has been written – absent public approval, and frequently under an atmosphere of extreme secrecy – inside bilateral investment treaties.

A Concrete Instance: The Cumbrian Coal Mine

A year ago, environmental campaigners won a great victory at the High Court. The justice found that plans to open the first deep coalmine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the licence the previous administration had issued. Currently, this legal outcome faces being overturned by an secret arbitration panel reporting to no one but the entities petitioning it.

Last August, a corporate entity whose final controllers are based in the Cayman Islands lodged a claim versus the UK government. Last week a arbitration panel in the US capital was convened to hear it.

The company is suing the UK for the profits it might have made if the mine had been permitted to proceed. We have no idea how much this could amount to. What legal team is acting on its behalf in opposition to the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a international entity disputes it through an secretive arbitration panel, and a sitting MP works for its behalf.

The Russian Lawsuit

On the same day that the court on the coal mine dispute was convened, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows scarce of the case to date, but it is highly possible that he’ll use the arbitration process to contest the restrictions the UK enacted against him subsequent to the war in Ukraine. He has started suing another European state with similar intent, claiming sixteen billion dollars: half that nation's yearly budget. Included in the legal team on his side? a prominent lawyer, married to the former British prime minister.

Legal experts believe that the EU’s delay in utilising seized state funds as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states may be obstructing the finance Ukraine desperately needs.

Empty Promises and Mounting Threats

The public was told that such things wouldn’t happen. Years ago, a government leader, promoting the largest and riskiest of all these agreements, declared: “Britain has agreed to trade agreement after trade deal and there has not been a problem in the past.” An adviser on this issue labelled campaigners of “scaremongering … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “as corporations start to realise the influence they now possess, they will turn their attention from the vulnerable countries to the developed economies” were greeted by general mockery.

That threat has now materialised. Recently, oil and gas and extraction companies have lodged a unprecedented number of suits against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to halt environmental catastrophe. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained $84bn. That is equivalent to the combined GDP