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Can you perceive our political system works? It could be something like this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills become law. Legislation is upheld by the courts. That's it. However, that was how it used to work. Not anymore.

The Rise of Secret Arbitration Panels

Today, foreign corporations, and the wealthy individuals who own them, can sue governments for the regulations they pass, at private courts staffed by commercial attorneys. These proceedings take place behind closed doors. Differing from national judiciaries, these panels allow no opportunity to appeal or judicial review. You or I cannot take a case to them, and neither can our government, including enterprises operating from this country. The door is open only to corporations operating from foreign soil.

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

This compensation represent not real financial harm but funds the tribunal officials decide the company could potentially have made. The government might be compelled to abandon its policy. It becomes hesitant to enacting future policies along the same lines, worried about being sued.

A Mechanism Growing Exponentially

Historically high figures of cases are being filed, as corporations learn from each other, and hedge funds fund legal actions in return for a share of the settlements. The outcome? Democratic sovereignty and democracy are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the decisions taken by legislatures is that this clause has been incorporated – without democratic mandate, and frequently under an atmosphere of profound opacity – within bilateral investment treaties.

A Concrete Case: The Whitehaven Coal Mine

A year ago, environmental campaigners won a great victory at the high court. The presiding officer determined that schemes to open the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no impact on our carbon budgets. The Labour government subsequently revoked the licence the previous administration had issued. Now, this success could be compromised by an secret arbitration panel reporting to only the entities filing the suit.

Last August, a corporate entity whose beneficial owners reside in the offshore financial centre lodged a claim versus the UK government. Recently a arbitration panel in the US capital was convened to adjudicate on it.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had received permission to proceed. We have little idea how much this might be. Which individual is acting on its behalf against the state? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the high court supports it, then a foreign company disputes it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Lawsuit

On the same day that the court on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case so far, but it seems likely that he may employ the ISDS mechanism to challenge the sanctions the UK levied against him following the war in Ukraine. He has previously initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: equivalent to half of state's yearly income. Included in the legal team representing him there? the wife of a former prime minister, married to the previous PM.

Legal experts believe that the EU’s delay in leveraging immobilised Russian assets as security for its aid for Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations could be blocking the finance Ukraine critically depends on.

Empty Promises and Escalating Threats

We were assured that these scenarios were not possible. Years ago, a senior politician, promoting the biggest and most dangerous of all such treaties, stated: “We’ve signed trade deal after trade deal and there has never been a problem in the past.” A consultant on this issue described campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations should be concerned by such legal actions. Warnings that “when companies start to realise the power they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were met with scepticism.

That prediction is now a reality. Recently, oil and gas and extraction companies have lodged a record number of cases against nations across the economic spectrum, challenging – like the example of the Whitehaven project – official measures to stop environmental catastrophe. Firms have to date won vast sums through ISDS, of which oil majors have secured $84bn. That equates to the combined GDP