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What is your understand our political system functions? Maybe something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills pass into law. The law are enforced by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Rise of Secret Arbitration Panels

Today, international firms, along with the oligarchs behind them, are able to litigate against governments for the regulations they pass, at private courts made up of commercial attorneys. The cases are conducted away from public scrutiny. Differing from national judiciaries, these tribunals allow no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, nor can our government, including enterprises operating from this country. The door is open only to entities operating from foreign soil.

Should an arbitration panel determines that a government measure might diminish the corporation’s anticipated profits, it can award compensation of vast sums, running into billions.

These sums are based not on tangible damages but money the arbitrators determine the company might otherwise have made. The administration may have to rescind the measure. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of cases are being brought, as firms observe each other, and investment funds bankroll lawsuits for a share of a portion of the settlements. The consequence? Democratic sovereignty and democracy are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the choices enacted by parliaments is that this provision has been incorporated – absent public approval, and typically amid a climate of total confidentiality – within international trade agreements.

A Specific Example: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the senior court. The judge ruled that proposals to dig the first major coal mine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the bizarre claim that the mine would have had no impact on our carbon budgets. The incoming administration subsequently revoked the licence the Tories had granted. Currently, this legal outcome is under threat by an foreign court answering to exclusively the entities filing the suit.

During August, a corporate entity whose final controllers are based in the Cayman Islands filed a lawsuit versus the UK government. Recently a dispute settlement body in the US capital was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to go ahead. The public has no clear indication how much this could amount to. Which individual is serving as its counsel against the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the high court supports it, then a foreign company disputes it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Concurrently that the panel on the coalmine case was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he’ll use the arbitration process to contest the penalties the UK levied against him subsequent to the invasion of Ukraine. He has initiated proceedings against a small nation for this reason, demanding a colossal sum: half that nation's annual revenue. Part of the lawyers on his side? the wife of a former prime minister, spouse of the previous PM.

Trade specialists contend that the EU’s delay in leveraging immobilised Russian assets as security for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over democratic administrations could be blocking the money Ukraine urgently requires.

Empty Promises and Mounting Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a government leader, advocating for the largest and riskiest of all these agreements, stated: “The UK has signed trade deal upon trade deal and there has never been a case in the past.” An expert on this topic accused critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “once firms start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were met with general mockery.

That warning has now materialised. This year, fossil fuel and extraction companies have filed a record number of claims against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to stop climate breakdown. Corporations have thus far won vast sums through ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP