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How do you perceive our system of government functions? Perhaps along the lines of this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Legislation is maintained by the courts. That's it. Well, that was how it once functioned. No longer.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, along with the billionaires that control them, can sue nation states for the regulations they pass, at offshore tribunals composed of business advocates. The cases are held away from public scrutiny. Differing from national judiciaries, these tribunals allow no avenue for appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, or even companies operating from this country. They are open solely for corporations registered abroad.

If a tribunal determines that a legislative action might diminish the corporation’s expected profits, it can award damages of hundreds of millions of pounds, potentially billions.

These sums are based not on tangible damages but compensation the arbitrators conclude the company might otherwise have made. The government may have to abandon its policy. It will be deterred from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being brought, as companies take cues from each other, and hedge funds bankroll lawsuits in exchange for a share of the awards. The outcome? National sovereignty and democratic governance are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the choices taken by parliaments is that this stipulation has been incorporated – absent public approval, and often in conditions of extreme secrecy – inside trade treaties.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the High Court. The judge determined that plans to open the first major coal mine in the UK for three decades, in Cumbria, were illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine would have had no impact on climate commitments. The new government subsequently revoked the permission the former government had granted. Today, this legal outcome could be compromised by an foreign court answering to no one but the companies petitioning it.

Last August, a company whose ultimate owners reside in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a dispute settlement body in Washington DC was set up to consider the case.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to proceed. The public has no idea how much this sum represents. What legal team is serving as its counsel against the UK administration? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot the MP. The government passes a law, the national judiciary upholds it, then a overseas corporation contests it through an undemocratic private court, and a elected official represents its behalf.

An Oligarch's Challenge

On the same day that the court on the coal mine dispute was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he will utilise the ISDS mechanism to challenge the restrictions the UK levied against him following the invasion of Ukraine. He has previously started suing a small nation for this reason, seeking $16bn: equivalent to half of government’s yearly income. Part of the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts argue that the EU’s delay in leveraging immobilised state funds as collateral for its financial support package stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over elected governments may be obstructing the funds Ukraine urgently requires.

Empty Promises and Mounting Threats

The public was told that such things were not possible. In 2014, a senior politician, promoting the largest and riskiest of all these agreements, declared: “We’ve signed trade agreement after trade deal and there has not been a case in the past.” An adviser on this issue labelled campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies grasp the authority bestowed upon them, they will shift their focus from the vulnerable countries to the developed economies” were met with scepticism.

That threat has now materialised. Recently, energy and extraction companies have initiated a record number of cases against nations both wealthy and developing, contesting – similar to the Whitehaven project – state efforts to halt environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP