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How do you perceive our political system works? Perhaps similar to this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. The law are enforced by the courts. Simple as that. Well, that used to be how it once functioned. Those days are over.

The Rise of Secret Arbitration Panels

In the modern era, international firms, or the oligarchs who own them, have the power to sue nation states for the laws they pass, at offshore tribunals staffed by business advocates. Such disputes take place in secret. In contrast to domestic courts, these panels grant no avenue for appeal or judicial review. You or I cannot take a case to them, nor can our government, or even businesses operating from this country. The door is open only to entities operating from foreign soil.

If a tribunal finds that a government measure might diminish the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, running into billions.

This compensation are based not on tangible damages but funds the tribunal officials determine the company would perhaps have made. The government might be compelled to abandon its policy. It is deterred from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of cases are being brought, as firms learn from each other, and investment funds fund legal actions in exchange for a share of the awards. The consequence? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the choices taken by legislatures is that this provision has been incorporated – without public consent, and often in a climate of total confidentiality – into international trade agreements.

A Concrete Example: The Whitehaven Coal Mine

Twelve months ago, a conservation group secured a significant win at the High Court. The judge ruled that schemes to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have had no consequence on our carbon budgets. The Labour government later cancelled the consent the previous administration had granted. Now, this legal outcome could be compromised by an offshore tribunal answering to exclusively the entities petitioning it.

In August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings challenging the UK government. The previous week a dispute settlement body in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it could have earned if the mine had been permitted to commence operations. Citizens have little idea how much this might be. Who is acting on its behalf challenging the state? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court supports it, then a foreign company contests it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

The Russian Case

On the same day that the court on the coal mine dispute was convened, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case to date, but it seems likely that he will utilise the arbitration process to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has filed a claim against Luxembourg on these grounds, seeking a colossal sum: half that nation's annual revenue. Part of the counsel representing him there? Cherie Blair, married to the previous PM.

Trade specialists argue that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the funds Ukraine critically depends on.

Misleading Claims and Growing Costs

We were assured that these scenarios were not possible. Previously, a senior politician, promoting the biggest and most dangerous of all investment pacts, told us: “We’ve signed trade deal after trade deal and there has not been a issue in the past.” An adviser on this issue accused activists of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “once firms grasp the power bestowed upon them, they will shift their focus from the vulnerable countries to the developed economies” were greeted by scepticism.

That warning has now materialised. This year, energy and mining firms have initiated a record number of cases against nations both wealthy and developing, opposing – like the example of the Whitehaven project – official measures to stop global warming. Corporations have to date won vast sums via ISDS, of which energy giants have secured the majority. That equates to the combined GDP