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How do you perceive our system of government works? Perhaps similar to this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. The law is upheld by the courts. Simple as that. However, that used to be how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

Nowadays, international firms, and the oligarchs who own them, can sue elected administrations for the laws they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings take place in secret. In contrast to domestic courts, these tribunals grant no right of appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, or even companies based in this country. The door is open only to businesses operating from foreign soil.

If a tribunal finds that a legislative action may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

These sums are based not on tangible damages but compensation the panel members conclude the company would perhaps have made. The administration could be forced to drop the legislation. It becomes deterred from introducing similar legislation in that area, worried about being sued.

A System Running Rampant

Historically high figures of disputes are being brought, as companies observe each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The consequence? National sovereignty and popular rule are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the decisions taken by legislatures is that this clause has been inserted – without public consent, and frequently under an atmosphere of extreme secrecy – within international trade agreements.

A Real-World Case: The UK Coal Mine

Twelve months ago, a conservation group secured a significant win at the High Court. The justice found that proposals to excavate the first major coal mine in the UK for a generation, in Cumbria, had been wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The incoming administration subsequently revoked the permission the former government had granted. Now, this success is under threat by an offshore tribunal reporting to only the companies bringing the case.

Last August, a company whose beneficial owners are based in the offshore financial centre lodged a claim versus the UK government. The previous week a arbitration panel in the United States was convened to consider the case.

The company is suing the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have no clear indication how much this could amount to. Who is acting on its behalf challenging the UK administration? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a foreign company challenges it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

A Sanctions Case

Concurrently that the court on the coal mine dispute was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case at present, but it is highly possible that he may employ the tribunal to challenge the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already started suing another European state for this reason, claiming a colossal sum: equivalent to half of government’s yearly budget. Among the legal team on his side? Cherie Blair, married to the previous PM.

International law scholars believe that the EU’s hesitation in leveraging immobilised oligarchs' funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over democratic administrations might be preventing the finance Ukraine urgently requires.

Empty Promises and Mounting Costs

We were assured that these events were not possible. In 2014, a government leader, advocating for the most significant and hazardous of all investment pacts, stated: “The UK has signed trade deal upon trade deal and there has never been a problem in the past.” An adviser on this matter accused critics of “scaremongering … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “as corporations begin to understand the influence they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by widespread derision.

That threat has now materialised. This year, energy and mining firms have initiated a unprecedented number of claims against nations both wealthy and developing, contesting – similar to the UK mine – government attempts to halt climate breakdown. Companies have so far won $114bn by using ISDS, of which energy giants have secured the majority. That represents the combined GDP