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Can you perceive our political system functions? Perhaps similar to this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills become law. Legislation is maintained by the courts. End of story. Well, that’s how it operated in the past. Those days are over.

The Emergence of Secret Arbitration Panels

In the modern era, international firms, or the billionaires who own them, can sue nation states for the regulations they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are held behind closed doors. Unlike our courts, these bodies provide no avenue for appeal or oversight by judges. The general public cannot take a case to them, nor can our government, or even businesses based in this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel finds that a government measure may compromise the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

This compensation represent not real financial harm but money the tribunal officials conclude the company could potentially have made. The administration may have to drop the legislation. It will be deterred from passing future laws in that area, for fear of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of cases are being initiated, as firms learn from each other, and private equity fund legal actions for a share of a portion of the awards. The consequence? Sovereignty and democracy are becoming too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the rulings enacted by legislatures is that this clause has been incorporated – absent public approval, and typically amid a climate of extreme secrecy – within bilateral investment treaties.

A Real-World Instance: The UK Coalmine

A year ago, environmental campaigners won a great victory at the High Court. The presiding officer determined that schemes to open the first new deep coal mine in the UK for three decades, in Cumbria, had been wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine would have had no impact on our carbon budgets. The new government later cancelled the licence the former government had approved. Currently, this legal outcome is under threat by an secret arbitration panel accountable to exclusively the companies bringing the case.

During August, a firm whose final controllers reside in the Cayman Islands lodged a claim against the UK government. Last week a tribunal in the United States was established to adjudicate on it.

This firm is suing the UK for the profits it might have made if the mine had been allowed to commence operations. The public has no clear indication how much this sum represents. Who is serving as its counsel challenging the state? A sitting MP, and ex-law officer in the previous government, the noted patriot the MP. The government enacts a policy, the high court validates it, then a foreign company contests it through an unaccountable offshore tribunal, and a member of our parliament works for its behalf.

A Sanctions Challenge

On the same day that the court on the mining lawsuit was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case so far, but it appears probable that he will utilise the tribunal to challenge the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has filed a claim against a small nation on these grounds, seeking $16bn: an amount representing half state's yearly budget. Included in the legal team on his side? the wife of a former prime minister, married to the former British prime minister.

Legal experts contend that the EU’s hesitation in utilising seized oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations could be blocking the funds Ukraine critically depends on.

Misleading Claims and Growing Risks

We were assured that such things could not occur. Previously, a senior politician, promoting the most significant and hazardous of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and there has never been a issue in the past.” An expert on this topic accused critics of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries needed to fear such legal actions. Predictions that “when companies grasp the power they now possess, they will shift their focus from the poorer states to the developed economies” were dismissed with general mockery.

That warning has come to pass. This year, energy and extraction companies have lodged a historic level of cases against nations across the economic spectrum, contesting – like the example of the Whitehaven project – government attempts to prevent global warming. Companies have to date won $114bn through ISDS, of which fossil fuel companies have secured the majority. That represents the combined GDP