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Can you reckon our political system works? It could be along the lines of this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills become law. Legislation are enforced by the courts. That's it. However, that was how it operated in the past. Those days are over.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, and the wealthy individuals behind them, have the power to sue nation states for the regulations they pass, at secret arbitration panels staffed by business advocates. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, including enterprises based in this country. They are open exclusively to corporations operating from foreign soil.

When a secret court finds that a law or policy may compromise the corporation’s expected profits, it can award damages of hundreds of millions, running into billions.

These awards constitute not real financial harm but funds the panel members conclude the company would perhaps have made. The state may have to abandon its policy. It becomes discouraged from enacting future policies in that area, worried about incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of cases are being brought, as corporations observe each other, and hedge funds fund legal actions in return for a share of the awards. The result? Democratic sovereignty and democracy are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the choices taken by parliaments is that this provision has been inserted – without democratic mandate, and often in conditions of total confidentiality – within bilateral investment treaties.

A Concrete Case: The UK Coalmine

Twelve months ago, activists secured a significant win at the High Court. The judge determined that schemes to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had agreed to the questionable argument that the mine would have no consequence on climate commitments. The Labour government later cancelled the consent the former government had issued. Today, this victory could be compromised by an foreign court answering to exclusively the companies petitioning it.

During August, a company whose beneficial owners are located in the offshore financial centre filed a lawsuit against the UK government. Last week a tribunal in the US capital was set up to adjudicate on it.

The claimant is litigating against the UK for the profits it would have generated if the mine had been permitted to commence operations. We have no clear indication how much this could amount to. Which individual is acting on its behalf in opposition to the state? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The state passes a law, the domestic court upholds it, then a overseas corporation contests it through an undemocratic arbitration panel, and a elected official works for its behalf.

The Russian Challenge

Concurrently that the panel on the mining lawsuit was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case so far, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK levied against him after the invasion of Ukraine. He has already initiated proceedings against a small nation with similar intent, seeking sixteen billion dollars: equivalent to half of nation's annual revenue. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the previous PM.

International law scholars believe that the EU’s hesitation in utilising seized state funds as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over elected governments might be preventing the money Ukraine desperately needs.

Misleading Claims and Escalating Costs

The public was told that such things could not occur. In 2014, a former prime minister, promoting the most significant and hazardous of all these agreements, declared: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” A consultant on this issue described campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries had to worry about ISDS claims. Cautionary notes that “once firms start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the strong ones” were met with general mockery.

That prediction has now materialised. In the current period, oil and gas and mining firms have filed a historic level of claims against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – government attempts to stop climate breakdown. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured $84bn. That represents the combined GDP