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What is your understand our system of government operates? Maybe along the lines of this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. The law is upheld by the courts. Simple as that. Well, that was how it used to work. Those days are over.

The Advent of Secret Arbitration Panels

Today, overseas companies, or the oligarchs that control them, can sue nation states for the policies they pass, at secret arbitration panels composed of corporate lawyers. The cases are held in secret. Differing from national judiciaries, these tribunals provide no avenue for appeal or legal review. You or I cannot take a case to them, just as our government, or even companies operating from this country. The door is open exclusively to entities based overseas.

When a secret court rules that a legislative action may compromise the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, even billions.

These sums are based not on actual losses but funds the arbitrators conclude the company could potentially have made. The state might be compelled to rescind the measure. It becomes hesitant to passing future laws in that area, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms observe each other, and hedge funds fund legal actions in exchange for a cut of the settlements. The consequence? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the choices enacted by legislatures is that this clause has been written – without democratic mandate, and typically amid a climate of profound opacity – inside bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The presiding officer determined that schemes to dig the first deep coalmine in the UK for a generation, in Cumbria, had been unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no impact on national carbon targets. The new government subsequently revoked the permission the previous administration had granted. Today, this success is under threat by an offshore tribunal accountable to no one but the corporations petitioning it.

During August, a firm whose beneficial owners reside in the Cayman Islands initiated proceedings versus the UK government. Recently a arbitration panel in the United States was established to hear it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had received permission to commence operations. The public has no idea how much this might be. Who is acting on its behalf challenging the British government? A sitting MP, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the domestic court supports it, then a foreign company contests it through an secretive offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Case

On the same day that the panel on the mining lawsuit was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are little of the case at present, but it seems likely that he will utilise the ISDS mechanism to fight the restrictions the UK levied against him after the invasion of Ukraine. He has previously filed a claim against another European state on these grounds, seeking sixteen billion dollars: an amount representing half nation's yearly budget. Part of the lawyers representing him there? Cherie Blair, married to the former British prime minister.

Legal experts argue that the EU’s hesitation in utilising seized 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 trade agreement. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Growing Risks

The public was told that such things could not occur. Previously, a former prime minister, promoting the biggest and most dangerous of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An expert on this matter described campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies grasp the authority they’ve been granted, they will turn their attention from the poorer states to the strong ones” were met with widespread derision.

That threat has now materialised. This year, fossil fuel and mining firms have initiated a record number of claims against nations across the economic spectrum, opposing – similar to the UK mine – official measures to halt climate breakdown. Companies have so far won $114bn through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That is equivalent to the combined GDP