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How do you reckon our political system works? Maybe along the lines of this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills become law. Statutes is upheld by the courts. That's it. Yet, that was how it used to work. Those days are over.

The Advent of Secret Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals who own them, are able to litigate against elected administrations for the laws they pass, at offshore tribunals staffed by corporate lawyers. Such disputes take place away from public scrutiny. In contrast to domestic courts, these tribunals provide no right of appeal or legal review. The general public cannot take a case to them, nor can our government, including companies operating from this country. The door is open only to entities based overseas.

When a secret court finds that a legislative action may compromise the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, even billions.

This compensation constitute not actual losses but funds the panel members decide the company might otherwise have made. The government might be compelled to abandon its policy. It becomes discouraged from enacting future policies in that area, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies take cues from each other, and private equity fund legal actions in return for a portion of the takings. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the choices made by legislatures is that this stipulation has been written – without public consent, and frequently under an atmosphere of profound opacity – inside international trade agreements.

A Concrete Example: The Whitehaven Coal Mine

Twelve months ago, a conservation group won a great victory at the high court. The justice ruled that proposals to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had endorsed the questionable argument that the mine would have zero effect on national carbon targets. The new government later cancelled the permission the previous administration had approved. Currently, this legal outcome could be compromised by an secret arbitration panel accountable to exclusively the companies bringing the case.

During August, a firm whose final controllers reside in the Cayman Islands initiated proceedings against the UK government. The previous week a arbitration panel in the United States was established to hear it.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had been permitted to go ahead. The public has little idea how much this might be. Who is representing it in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the noted patriot the MP. The administration makes a decision, the domestic court supports it, then a foreign company contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coal mine dispute was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. We know scarce of the case so far, but it appears probable that he will utilise the tribunal to contest the penalties the UK levied against him after the war in Ukraine. He has previously initiated proceedings against another European state on these grounds, claiming a colossal sum: half that state's yearly income. Included in the counsel on his side? Cherie Blair, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in using frozen Russian assets as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over sovereign states could be blocking the money Ukraine urgently requires.

Empty Promises and Escalating Costs

Politicians promised that these scenarios were not possible. Previously, a senior politician, advocating for the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to trade deal upon trade deal and there has never been a problem in the past.” An adviser on this issue described critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about such legal actions. Predictions that “when companies grasp the power bestowed upon them, they will shift their focus from the poorer states to the wealthy nations” were met with scepticism.

That warning has now materialised. This year, oil and gas and resource corporations have filed a historic level of claims against nations rich and poor, challenging – like the example of the UK mine – state efforts to prevent climate breakdown. Corporations have so far won vast sums by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That represents the combined GDP