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Can you understand our system of government operates? Maybe along the lines of this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills become law. The law is maintained by the courts. End of story. Yet, that’s how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, international firms, along with the oligarchs who own them, are able to litigate against governments for the laws they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings are conducted in secret. Differing from national judiciaries, these panels grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, or even businesses based in this country. The door is open exclusively to entities operating from foreign soil.

When a secret court determines that a law or policy could harm the corporation’s anticipated profits, it may order damages of hundreds of millions, running into billions.

This compensation are based not on tangible damages but compensation the tribunal officials determine the company would perhaps have made. The government might be compelled to drop the legislation. It becomes hesitant to passing future laws in that area, due to the risk of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being filed, as companies learn from each other, and investment funds fund legal actions in exchange for a cut of the settlements. The consequence? National sovereignty and democracy are now too costly.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can supersede a country's own laws and the rulings made by elected bodies is that this provision has been incorporated – without democratic mandate, and frequently under an atmosphere of total confidentiality – into bilateral investment treaties.

A Specific Instance: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the high court. The presiding officer ruled that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on climate commitments. The new government then withdrew the consent the previous administration had issued. Currently, this victory could be compromised by an foreign court accountable to exclusively the companies petitioning it.

In August, a firm whose ultimate owners are located in the offshore financial centre lodged a claim versus the UK government. Recently a arbitration panel in the United States was set up to consider the case.

The claimant is suing the UK for the profits it would have generated if the mine had received permission to proceed. We have no idea how much this could amount to. Who is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary upholds it, then a foreign company contests it through an undemocratic arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Challenge

On the same day that the panel on the coal mine dispute was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. We know scarce of the case at present, but it appears probable that he’ll use the tribunal to challenge the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against another European state with similar intent, seeking a colossal sum: half that nation's yearly income. Part of the lawyers representing him there? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s procrastination in using frozen state funds as collateral for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over democratic administrations might be preventing the finance Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that these events wouldn’t happen. Years ago, a former prime minister, promoting the largest and riskiest of all these agreements, stated: “The UK has signed investment treaty upon trade deal and there has never been a issue in the past.” A consultant on this issue accused campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “once firms start to realise the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with general mockery.

That prediction has now materialised. Recently, oil and gas and extraction companies have filed a record number of suits against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – state efforts to prevent global warming. Firms have so far won $114bn by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP