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What is your reckon our system of government functions? It could be similar to this. We elect MPs. They legislate on bills. Should a majority is secured, the bills pass into law. The law are enforced by the courts. That's it. Well, that was how it operated in the past. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, overseas companies, along with the wealthy individuals that control them, can sue nation states for the policies they pass, at secret arbitration panels made up of business advocates. Such disputes are held away from public scrutiny. Differing from national judiciaries, these panels grant no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies based in this country. The door is open only to businesses operating from foreign soil.

If a tribunal determines that a law or policy could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, potentially billions.

These sums represent not tangible damages but compensation the tribunal officials decide the company would perhaps have made. The state could be forced to abandon its policy. It will be deterred from passing future laws of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being brought, as corporations take cues from each other, and hedge funds bankroll lawsuits for a share of a portion of the settlements. The result? Sovereignty and democratic governance are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the rulings taken by parliaments is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of total confidentiality – within international trade agreements.

A Specific Case: The Cumbrian Coalmine

Twelve months ago, activists achieved a major legal triumph at the senior court. The judge found that schemes to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no impact on national carbon targets. The incoming administration later cancelled the licence the former government had issued. Currently, this victory could be compromised by an offshore tribunal accountable to no one but the entities petitioning it.

During August, a corporate entity whose beneficial owners are located in the tax haven filed a lawsuit against the UK government. The previous week a arbitration panel in the United States was set up to hear it.

This firm is suing the UK for the revenue it would have generated if the mine had been allowed to go ahead. The public has no idea how much this could amount to. Which individual is serving as its counsel challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a foreign company disputes it through an secretive private court, and a elected official represents its behalf.

A Sanctions Challenge

On the same day that the court on the coalmine case was established, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it seems likely that he may employ the ISDS mechanism to challenge the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has previously started suing another European state for this reason, seeking a colossal sum: equivalent to half of nation's annual revenue. Among the lawyers representing him there? a prominent lawyer, spouse of the previous PM.

International law scholars contend that the EU’s delay in using frozen Russian assets as guarantee for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations may be obstructing the money Ukraine urgently requires.

False Assurances and Escalating Risks

The public was told that these events could not occur. Years ago, a former prime minister, promoting the most significant and hazardous of all these agreements, declared: “We’ve signed investment treaty upon trade deal and there has not been a case in the past.” An expert on this matter accused campaigners of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about such legal actions. Predictions that “as corporations begin to understand the power they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That prediction is now a reality. Recently, oil and gas and mining firms have lodged a historic level of cases against nations rich and poor, opposing – like the example of the UK mine – official measures to stop global warming. Firms have so far won vast sums via ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP