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How do you perceive our system of government works? Perhaps something like this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills become law. The law is maintained by the courts. End of story. Yet, that’s how it once functioned. No longer.

The Emergence of Secret Arbitration Panels

In the modern era, overseas companies, and the oligarchs behind them, can sue governments for the regulations they pass, at secret arbitration panels made up of business advocates. Such disputes are conducted in secret. Differing from national judiciaries, these bodies grant no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, or even companies operating from this country. The door is open exclusively to businesses registered abroad.

If a tribunal rules that a government measure could harm the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, running into billions.

These awards are based not on real financial harm but money the arbitrators determine the company might otherwise have made. The government may have to rescind the measure. It becomes discouraged from enacting future policies along the same lines, for fear of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being initiated, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a share of the awards. The result? Democratic sovereignty and democracy are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can override a country's own laws and the decisions taken by elected bodies is that this provision has been written – without democratic mandate, and typically amid an atmosphere of extreme secrecy – inside trade treaties.

A Real-World Case: The Cumbrian Coalmine

A year ago, activists achieved a major legal triumph at the high court. The presiding officer ruled that schemes to excavate the first deep coalmine in the UK for three decades, in northwest England, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had issued. Currently, this legal outcome could be compromised by an offshore tribunal answering to exclusively the companies petitioning it.

Last August, a firm whose beneficial owners are based in the offshore financial centre filed a lawsuit versus the UK government. The previous week a arbitration panel in the US capital was convened to hear it.

The company is seeking compensation from the UK for the profits it might have made if the mine had received permission to go ahead. Citizens have no idea how much this might be. Which individual is acting on its behalf challenging the UK administration? A sitting MP, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The state enacts a policy, the national judiciary validates it, then a foreign company contests it through an secretive private court, and a elected official represents its behalf.

A Sanctions Case

Simultaneously that the panel on the coal mine dispute was established, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case at present, but it is highly possible that he’ll use the arbitration process to fight the penalties the UK levied against him following the war in Ukraine. He has filed a claim against Luxembourg on these grounds, claiming $16bn: equivalent to half of government’s yearly income. Among the lawyers on his side? a prominent lawyer, wife of the ex-UK leader.

International law scholars argue that the EU’s hesitation in utilising seized oligarchs' funds as security for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over sovereign states could be blocking the finance Ukraine urgently requires.

Empty Promises and Escalating Costs

The public was told that such things wouldn’t happen. Years ago, a senior politician, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade agreement upon trade deal and we have never seen a case in the past.” An expert on this issue described campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Predictions that “when companies grasp the influence bestowed upon them, they will shift their focus from the weak nations to the developed economies” were met with general mockery.

That threat has now materialised. This year, oil and gas and resource corporations have filed a historic level of suits against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – state efforts to halt climate breakdown. Firms have thus far won $114bn via ISDS, of which oil majors have secured the majority. That is equivalent to the combined GDP