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Can you perceive our political system operates? Maybe similar to this. We elect MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. Not anymore.

The Rise of Secret Arbitration Panels

Today, foreign corporations, along with the oligarchs that control them, are able to litigate against governments for the policies they pass, at private courts staffed by business advocates. Such disputes are conducted in secret. Unlike our courts, these panels provide no right of appeal or legal review. The general public are unable to file a case to them, just as our government, including enterprises operating from this country. The door is open only to corporations registered abroad.

When a secret court rules that a law or policy might diminish the corporation’s anticipated profits, it has the power to grant damages of vast sums, running into billions.

This compensation are based not on tangible damages but money the tribunal officials decide the company would perhaps have made. The state could be forced to drop the legislation. It becomes hesitant to introducing similar legislation along the same lines, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of cases are being brought, as companies take cues from each other, and hedge funds finance suits in return for a cut of the awards. The consequence? Sovereignty and democratic governance are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the choices made by legislatures is that this clause has been incorporated – without democratic mandate, and typically amid an atmosphere of total confidentiality – into international trade agreements.

A Specific Example: The Whitehaven Coalmine

A year ago, a conservation group achieved a major legal triumph at the high court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have no impact on national carbon targets. The Labour government then withdrew the licence the Tories had approved. Today, this legal outcome could be compromised by an offshore tribunal accountable to no one but the companies filing the suit.

During August, a company whose beneficial owners are located in the tax haven filed a lawsuit versus the UK government. Recently a tribunal in the US capital was established to hear it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been permitted to proceed. The public has no clear indication how much this sum represents. What legal team is representing it challenging the state? An elected representative, and ex-law officer in the outgoing administration, the noted patriot Sir Geoffrey Cox. The government passes a law, the national judiciary validates it, then a overseas corporation contests it through an unaccountable arbitration panel, and a elected official works for its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was appointed, we learned 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 so far, but it is highly possible that he will utilise the arbitration process to fight the penalties the UK imposed on him after the Russian aggression. He has previously initiated proceedings against a small nation for this reason, demanding a colossal sum: an amount representing half state's yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Trade specialists contend that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over elected governments may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Costs

The public was told that these events wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all such treaties, stated: “The UK has signed trade agreement upon trade deal and there has not been a case in the past.” A consultant on this topic accused activists of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations should be concerned by ISDS claims. Predictions that “when companies begin to understand the power they now possess, they will turn their attention from the poorer states to the wealthy nations” were greeted by widespread derision.

That warning has come to pass. Recently, oil and gas and extraction companies have initiated a historic level of claims against nations across the economic spectrum, opposing – similar to the Whitehaven project – state efforts to prevent climate breakdown. Companies have to date won $114bn by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP