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Can you perceive our political system works? It could be along the lines of this. The public votes for MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. Legislation are enforced by the courts. That's it. However, that’s how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

Today, foreign corporations, along with the billionaires that control them, are able to litigate against governments for the laws they pass, at secret arbitration panels staffed by corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these tribunals provide no right of appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even businesses based in this country. They are open exclusively to entities based overseas.

Should an arbitration panel finds that a government measure might diminish the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, even billions.

These awards represent not tangible damages but money the arbitrators conclude the company might otherwise have made. The government may have to rescind the measure. It will be deterred from enacting future policies along the same lines, due to the risk of facing litigation.

A Process Running Rampant

Historically high figures of disputes are being initiated, as corporations learn from each other, and private equity bankroll lawsuits in return for a cut of the awards. The outcome? National sovereignty and democratic governance are turning into prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the rulings enacted by elected bodies is that this provision has been written – absent public approval, and often in a climate of extreme secrecy – within trade treaties.

A Concrete Case: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the high court. The justice determined that schemes to dig the first major coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine would have zero effect on climate commitments. The incoming administration later cancelled the consent the Tories had issued. Today, this success could be compromised by an offshore tribunal accountable to only the entities petitioning it.

During August, a company whose final controllers reside in the Cayman Islands filed a lawsuit challenging the UK government. Recently a tribunal in the United States was set up to consider the case.

The company is suing the UK for the revenue it might have made if the mine had received permission to go ahead. We have no clear indication how much this might be. What legal team is serving as its counsel in opposition to the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The government makes a decision, the high court validates it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Case

Concurrently that the court on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case so far, but it seems likely that he’ll use the ISDS mechanism to contest the penalties the UK levied against him following the invasion of Ukraine. He has previously started suing another European state for this reason, seeking $16bn: half that nation's yearly budget. Included in the legal team acting for him in that case? Cherie Blair, married to the ex-UK leader.

Legal experts argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Escalating Costs

Politicians promised that these scenarios were not possible. Years ago, a former prime minister, championing the largest and riskiest of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” An adviser on this topic accused campaigners of “alarmism … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations needed to fear such legal actions. Warnings that “when companies begin to understand the authority they now possess, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by general mockery.

That prediction has now materialised. This year, energy and mining firms have initiated a record number of cases against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to stop environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP