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How do you perceive our political system works? It could be something like this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills become law. The law are enforced by the courts. Simple as that. Well, that used to be how it used to work. Those days are over.

The Emergence of Shadow Arbitration Panels

Nowadays, international firms, or the wealthy individuals that control them, can sue nation states for the policies they pass, at offshore tribunals staffed by corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these tribunals provide no right of appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, including companies operating from this country. The door is open only to businesses registered abroad.

If a tribunal finds that a law or policy might diminish the corporation’s expected profits, it may order financial penalties of vast sums, potentially billions.

This compensation constitute not tangible damages but compensation the panel members decide the company might otherwise have made. The administration might be compelled to rescind the measure. It will be deterred from passing future laws along the same lines, due to the risk of facing litigation.

A System Running Rampant

Record numbers of cases are being brought, as companies observe each other, and private equity finance suits for a share of a share of the takings. The consequence? Sovereignty and democratic governance are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the rulings enacted by elected bodies is that this clause has been written – absent public approval, and frequently under a climate of profound opacity – inside bilateral investment treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The judge found that plans to excavate the first major coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The new government later cancelled the permission the previous administration had granted. Now, this success faces being overturned by an secret arbitration panel accountable to exclusively the companies petitioning it.

In August, a company whose ultimate owners are located in the tax haven initiated proceedings challenging the UK government. Recently a dispute settlement body in the United States was convened to adjudicate on it.

The company is litigating against the UK for the money it might have made if the mine had been allowed to go ahead. The public has little idea how much this could amount to. Which individual is acting on its behalf in opposition to the British government? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The government passes a law, the domestic court validates it, then a foreign company contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

An Oligarch's Case

Concurrently that the tribunal on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it is highly possible that he will utilise the arbitration process to contest the restrictions the UK enacted against him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, demanding $16bn: an amount representing half nation's yearly income. Among the lawyers acting for him in that case? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s delay in utilising seized Russian assets as collateral for its financial support package stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over elected governments could be blocking the finance Ukraine critically depends on.

False Assurances and Escalating Threats

We were assured that these events could not occur. In 2014, a senior politician, advocating for the largest and riskiest of all such treaties, declared: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” An expert on this matter described activists of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations needed to fear ISDS claims. Predictions that “as corporations grasp the authority they now possess, they will shift their focus from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction has come to pass. Recently, energy and mining firms have filed a unprecedented number of suits against nations across the economic spectrum, challenging – as in the case of the UK mine – government attempts to stop environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP