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What is your understand our system of government works? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Legislation is maintained by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, or the oligarchs that control them, are able to litigate against nation states for the laws they pass, at private courts composed of business advocates. These proceedings are held away from public scrutiny. In contrast to domestic courts, these bodies provide no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even companies headquartered in this country. The door is open only to businesses registered abroad.

If a tribunal finds that a government measure may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions of pounds, running into billions.

These awards represent not real financial harm but money the panel members decide the company would perhaps have made. The state could be forced to drop the legislation. It will be discouraged from passing future laws in that area, worried about facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being initiated, as companies take cues from each other, and private equity fund legal actions in exchange for a portion of the awards. The result? National sovereignty and democracy are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the rulings taken by parliaments is that this stipulation has been incorporated – without public consent, and frequently under an atmosphere of profound opacity – inside trade treaties.

A Concrete Case: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the senior court. The justice determined that proposals to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine would have no consequence on climate commitments. The incoming administration subsequently revoked the consent the former government had approved. Today, this legal outcome is under threat by an foreign court answering to no one but the corporations petitioning it.

During August, a company whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

The claimant is suing the UK for the profits it would have generated if the mine had been allowed to go ahead. The public has no clear indication how much this could amount to. Which individual is acting on its behalf in opposition to the state? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The administration makes a decision, the domestic court upholds it, then a overseas corporation disputes it through an secretive arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Case

Simultaneously that the panel on the coal mine dispute was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he’ll use the arbitration process to challenge the restrictions the UK enacted against him subsequent to the invasion of Ukraine. He has initiated proceedings against another European state for this reason, claiming $16bn: equivalent to half of government’s yearly income. Among the lawyers acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in leveraging immobilised state funds as security for its financial support package arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over sovereign states might be preventing the finance Ukraine critically depends on.

False Assurances and Escalating Costs

Politicians promised that these scenarios could not occur. Previously, a government leader, advocating for the largest and riskiest of all investment pacts, declared: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” An expert on this issue labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states needed to fear ISDS claims. Predictions that “once firms start to realise the influence bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were dismissed with general mockery.

That prediction has come to pass. Recently, fossil fuel and mining firms have lodged a historic level of claims against nations both wealthy and developing, challenging – similar to the Cumbrian coalmine – state efforts to stop environmental catastrophe. Corporations have thus far won vast sums via ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP