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Can you reckon our system of government operates? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is secured, the bills pass into law. The law is upheld by the courts. That's it. However, that was how it operated in the past. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, or the billionaires who own them, are able to litigate against elected administrations for the regulations they pass, at private courts made up of business advocates. Such disputes take place away from public scrutiny. Differing from national judiciaries, these bodies grant no right of appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. The door is open solely for corporations operating from foreign soil.

Should an arbitration panel rules that a law or policy could harm the corporation’s expected profits, it can award financial penalties of vast sums, running into billions.

These awards represent not real financial harm but funds the panel members conclude the company might otherwise have made. The state could be forced to rescind the measure. It becomes discouraged from enacting future policies in that area, worried about facing litigation.

A Mechanism Growing Exponentially

Historically high figures of cases are being filed, as companies take cues from each other, and private equity bankroll lawsuits in return for a portion of the settlements. The consequence? Democratic sovereignty and democratic governance are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the rulings made by elected bodies is that this clause has been inserted – absent public approval, and typically amid an atmosphere of extreme secrecy – within international trade agreements.

A Concrete Instance: The Whitehaven Coalmine

A year ago, a conservation group secured a significant win at the High Court. The judge ruled that plans to open the first major coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine would have had zero effect on climate commitments. The new government later cancelled the licence the former government had approved. Now, this success faces being overturned by an secret arbitration panel answering to no one but the corporations filing the suit.

During August, a firm whose ultimate owners reside in the offshore financial centre initiated proceedings against the UK government. Recently a arbitration panel in the United States was set up to adjudicate on it.

The claimant is suing the UK for the profits it might have made if the mine had been permitted to proceed. The public has little idea how much this sum represents. What legal team is acting on its behalf against the British government? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The government passes a law, the national judiciary validates it, then a international entity challenges it through an secretive arbitration panel, and a member of our parliament represents its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know scarce of the case so far, but it seems likely that he will utilise the tribunal to fight the sanctions the UK imposed on him after the war in Ukraine. He has previously started suing Luxembourg with similar intent, claiming a colossal sum: half that state's yearly income. Part of the counsel representing him there? a prominent lawyer, married to the ex-UK leader.

Legal experts contend that the EU’s delay in using frozen state funds as guarantee for its financial support package stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over elected governments could be blocking the funds Ukraine desperately needs.

False Assurances and Escalating Costs

Politicians promised that these events could not occur. Years ago, a government leader, promoting the most significant and hazardous of all such treaties, told us: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An expert on this topic accused critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that solely developing countries had to worry about such legal actions. Warnings that “once firms begin to understand the influence they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were met with widespread derision.

That warning has come to pass. This year, energy and extraction companies have lodged a unprecedented number of cases against nations both wealthy and developing, contesting – like the example of the Whitehaven project – government attempts to halt environmental catastrophe. Companies have so far won $114bn by using ISDS, of which energy giants have been awarded $84bn. That represents the combined GDP