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What is your reckon our system of government functions? It could be something like this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. The law is maintained by the courts. Simple as that. However, that’s how it once functioned. Those days are over.

The Rise of Secret Arbitration Panels

Today, overseas companies, and the oligarchs behind them, can sue nation states for the regulations they pass, at secret arbitration panels made up of corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these panels allow no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, including businesses operating from this country. Access is granted exclusively to entities operating from foreign soil.

Should an arbitration panel finds that a law or policy could harm the corporation’s anticipated profits, it can award compensation of hundreds of millions, running into billions.

This compensation constitute not real financial harm but money the panel members determine the company would perhaps have made. The state could be forced to drop the legislation. It becomes hesitant to introducing similar legislation in that area, for fear of being sued.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as firms observe each other, and investment funds finance suits in exchange for a share of the takings. The result? National sovereignty and democratic governance are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the decisions made by legislatures is that this clause has been incorporated – without democratic mandate, and often in conditions of extreme secrecy – within trade treaties.

A Concrete Example: The Whitehaven Coalmine

Last year, a conservation group won a great victory at the High Court. The judge found that plans to excavate the first major coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine could have zero effect on our carbon budgets. The Labour government subsequently revoked the consent the former government had issued. Currently, this victory is under threat by an foreign court reporting to only the companies filing the suit.

In August, a company whose beneficial owners are located in the Cayman Islands lodged a claim versus the UK government. The previous week a dispute settlement body in Washington DC was established to consider the case.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to commence operations. Citizens have no clear indication how much this might be. Who is acting on its behalf in opposition to the British government? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The government enacts a policy, the national judiciary validates it, then a foreign company contests it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

The Russian Case

Simultaneously that the tribunal on the coal mine dispute was convened, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case so far, but it appears probable that he may employ the ISDS mechanism to contest the restrictions the UK levied against him subsequent to the war in Ukraine. He has started suing another European state on these grounds, claiming sixteen billion dollars: half that nation's yearly budget. Included in the counsel on his side? Cherie Blair, married to the previous PM.

Trade specialists argue that the EU’s delay in utilising seized state funds as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations might be preventing the money Ukraine critically depends on.

False Assurances and Growing Costs

Politicians promised that these events wouldn’t happen. Years ago, a government leader, championing the most significant and hazardous of all such treaties, told us: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” A consultant on this matter accused critics of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “as corporations grasp the influence they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with general mockery.

That threat has come to pass. This year, fossil fuel and mining firms have filed a unprecedented number of suits against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – state efforts to stop environmental catastrophe. Corporations have so far won $114bn through ISDS, of which energy giants have been awarded eighty-four billion dollars. That represents the combined GDP