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How do you understand our political system operates? Perhaps similar to this. We elect MPs. They legislate on bills. If a majority is secured, the bills pass into law. Statutes is upheld by the courts. That's it. Yet, that used to be how it operated in the past. Not anymore.

The Emergence of Secret Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals who own them, are able to litigate against nation states for the policies they pass, at private courts composed of commercial attorneys. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these panels allow no avenue for appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, including enterprises operating from this country. The door is open solely for entities based overseas.

When a secret court determines that a government measure might diminish the corporation’s expected profits, it may order financial penalties of vast sums, even billions.

These sums constitute not tangible damages but money the arbitrators determine the company would perhaps have made. The state might be compelled to abandon its policy. It will be hesitant to passing future laws in that area, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of cases are being initiated, as companies take cues from each other, and hedge funds fund legal actions for a share of a portion of the settlements. The consequence? National sovereignty and democracy are turning into unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the rulings made by parliaments is that this clause has been inserted – without public consent, and often in conditions of profound opacity – inside international trade agreements.

A Specific Example: The UK Coalmine

Last year, a conservation group secured a significant win at the High Court. The judge ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine could have no consequence on our carbon budgets. The incoming administration then withdrew the licence the former government had approved. Now, this success could be compromised by an secret arbitration panel answering to only the corporations bringing the case.

Last August, a company whose final controllers are based in the tax haven initiated proceedings versus the UK government. The previous week a dispute settlement body in the US capital was convened to hear it.

The claimant is suing the UK for the revenue it could have earned if the mine had received permission to go ahead. The public has no idea how much this could amount to. Which individual is representing it in opposition to the state? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the domestic court upholds it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

The Russian Case

Concurrently that the tribunal on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case to date, but it is highly possible that he may employ the ISDS mechanism to challenge the sanctions the UK levied against him after the war in Ukraine. He has already initiated proceedings against Luxembourg with similar intent, seeking sixteen billion dollars: half that nation's yearly income. Included in the lawyers acting for him in that case? Cherie Blair, wife of the previous PM.

International law scholars argue that the EU’s procrastination in using frozen oligarchs' funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations might be preventing the money Ukraine critically depends on.

False Assurances and Escalating Threats

We were assured that these scenarios could not occur. Years ago, a senior politician, championing the largest and riskiest of all such treaties, told us: “Britain has agreed to trade agreement upon trade deal and there has never been a issue in the past.” An expert on this topic labelled critics of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries needed to fear ISDS claims. Warnings that “as corporations start to realise the authority they’ve been granted, they will turn their attention from the poorer states to the strong ones” were greeted by widespread derision.

That warning has come to pass. This year, energy and extraction companies have lodged a record number of cases against nations rich and poor, opposing – like the example of the UK mine – state efforts to halt climate breakdown. Corporations have to date won vast sums via ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP