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How do you reckon our system of government works? It could be similar to this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. End of story. Yet, that’s how it once functioned. Those days are over.

The Emergence of Secret Arbitration Panels

Nowadays, overseas companies, and the oligarchs who own them, are able to litigate against nation states for the regulations they pass, at private courts made up of business advocates. These proceedings are conducted in secret. Differing from national judiciaries, these panels provide no opportunity to appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. Access is granted only to corporations based overseas.

If a tribunal rules that a government measure could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These awards constitute not tangible damages but money the arbitrators decide the company would perhaps have made. The administration could be forced to abandon its policy. It will be deterred from passing future laws of a similar nature, worried about incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of cases are being initiated, as corporations observe each other, and hedge funds fund legal actions for a share of a cut of the settlements. The result? National sovereignty and democracy are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the rulings made by parliaments is that this stipulation has been written – without public consent, and frequently under a climate of total confidentiality – into trade treaties.

A Concrete Example: The Cumbrian Coalmine

Last year, activists won a great victory at the senior court. The presiding officer ruled that plans to dig the first deep coalmine in the UK for three decades, in Cumbria, were wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine would have had zero effect 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 foreign court answering to exclusively the companies filing the suit.

In August, a company whose final controllers are located in the tax haven initiated proceedings challenging the UK government. Recently a tribunal in the US capital was set up to hear it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had received permission to go ahead. Citizens have no idea how much this could amount to. Who is serving as its counsel against the UK administration? A sitting MP, and former attorney-general in the outgoing administration, that great patriot Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a overseas corporation contests it through an secretive arbitration panel, and a sitting MP represents its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know little of the case to date, but it is highly possible that he’ll use the arbitration process to fight the penalties the UK imposed on him subsequent to the war in Ukraine. He has already started suing another European state for this reason, demanding a colossal sum: equivalent to half of nation's yearly income. Part of the counsel representing him there? Cherie Blair, wife of the former British prime minister.

Trade specialists believe that the EU’s procrastination in leveraging immobilised state funds as security for its aid for Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, unaccountable authority over elected governments could be blocking the money Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that such things wouldn’t happen. Previously, a senior politician, championing the biggest and most dangerous of all such treaties, told us: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” An expert on this issue described campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “when companies start to realise the influence they now possess, they will turn their attention from the vulnerable countries to the wealthy nations” were met with general mockery.

That threat has come to pass. This year, fossil fuel and mining firms have initiated a record number of suits against nations across the economic spectrum, challenging – as in the case of the Cumbrian coalmine – official measures to halt environmental catastrophe. Firms have to date won vast sums by using ISDS, of which oil majors have secured $84bn. That equates to the combined GDP