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Can you reckon our political system works? Perhaps similar to this. We elect MPs. They vote on bills. Should a majority is achieved, the bills become law. Legislation is upheld by the courts. That's it. Yet, that was how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, along with the wealthy individuals who own them, have the power to sue governments for the regulations they pass, at secret arbitration panels composed of business advocates. The cases take place in secret. Differing from national judiciaries, these bodies grant no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, including companies based in this country. Access is granted solely for businesses based overseas.

When a secret court rules that a legislative action might diminish the corporation’s expected profits, it has the power to grant compensation of vast sums, even billions.

These awards constitute not tangible damages but compensation the arbitrators determine the company could potentially have made. The state may have to abandon its policy. It becomes discouraged from introducing similar legislation in that area, due to the risk of facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of cases are being brought, as corporations observe each other, and private equity finance suits in return for a cut of the awards. The outcome? Democratic sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the rulings made by parliaments is that this clause has been written – without democratic mandate, and typically amid a climate of extreme secrecy – inside bilateral investment treaties.

A Concrete Case: The Whitehaven Coalmine

A year ago, activists secured a significant win at the High Court. The presiding officer found that schemes to excavate the first major coal mine in the UK for three decades, in northwest England, were illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine would have no consequence on national carbon targets. The incoming administration later cancelled the licence the Tories had issued. Today, this success could be compromised by an foreign court answering to no one but the companies filing the suit.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands filed a lawsuit challenging the UK government. Recently a tribunal in the United States was established to adjudicate on it.

The company is suing the UK for the money it might have made if the mine had received permission to go ahead. The public has no clear indication how much this might be. What legal team is serving as its counsel challenging the UK administration? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a elected official represents its behalf.

The Russian Case

On the same day that the panel on the mining lawsuit was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know little of the case to date, but it is highly possible that he will utilise the arbitration process to contest the penalties the UK levied against him following the war in Ukraine. He has started suing another European state for this reason, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Part of the legal team acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists believe that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine desperately needs.

False Assurances and Escalating Risks

We were assured that such things could not occur. Years ago, a senior politician, advocating for the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement after trade deal and there has not been a problem in the past.” An expert on this topic labelled critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations had to worry about such legal actions. Predictions that “as corporations start to realise the influence bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were met with scepticism.

That warning has come to pass. This year, oil and gas and mining firms have lodged a historic level of claims against nations rich and poor, contesting – similar to the Cumbrian coalmine – government attempts to stop global warming. Firms have to date won $114bn via ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP