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Can you understand our system of government works? Maybe similar to this. The public votes for MPs. They debate and pass bills. If a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. However, that used to be how it once functioned. Not anymore.

The Emergence of Secret Arbitration Panels

In the modern era, international firms, or the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at private courts made up of corporate lawyers. The cases take place away from public scrutiny. Unlike our courts, these bodies allow no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even companies headquartered in this country. They are open exclusively to entities based overseas.

Should an arbitration panel rules that a government measure could harm the corporation’s projected profits, it may order financial penalties of vast sums, running into billions.

This compensation constitute not actual losses but money the arbitrators determine the company could potentially have made. The government might be compelled to abandon its policy. It becomes deterred from passing future laws in that area, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being filed, as companies take cues from each other, and hedge funds finance suits in exchange for a share of the settlements. The result? National sovereignty and popular rule are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump a country's own laws and the decisions enacted by legislatures is that this stipulation has been written – without democratic mandate, and typically amid conditions of total confidentiality – into bilateral investment treaties.

A Real-World Example: The Whitehaven Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The presiding officer determined that proposals to dig the first major coal mine in the UK for 30 years, in northwest England, had been unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had no impact on national carbon targets. The incoming administration subsequently revoked the licence the previous administration had granted. Now, this legal outcome is under threat by an foreign court answering to only the entities petitioning it.

During August, a firm whose final controllers are located in the offshore financial centre filed a lawsuit versus the UK government. Recently a arbitration panel in Washington DC was established to adjudicate on it.

This firm is litigating against the UK for the money it would have generated if the mine had received permission to go ahead. We have little idea how much this could amount to. Who is serving as its counsel against the UK administration? A member of parliament, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The government makes a decision, the national judiciary supports it, then a international entity contests it through an secretive arbitration panel, and a member of our parliament represents its behalf.

The Russian Case

Concurrently that the tribunal on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case so far, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK enacted against him following the invasion of Ukraine. He has initiated proceedings against Luxembourg on these grounds, claiming sixteen billion dollars: half that government’s yearly income. Part of the legal team representing him there? a prominent lawyer, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in using frozen oligarchs' funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations may be obstructing the funds Ukraine desperately needs.

Misleading Claims and Growing Costs

We were assured that such things could not occur. Years ago, a former prime minister, championing the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement after trade deal and we have never seen a problem in the past.” A consultant on this matter accused critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about such legal actions. Warnings that “once firms grasp the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That threat has come to pass. Recently, energy and extraction companies have filed a historic level of claims against nations both wealthy and developing, opposing – as in the case of the UK mine – official measures to stop environmental catastrophe. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP