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How do you reckon our system of government operates? Maybe something like this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills pass into law. Legislation is upheld by the courts. End of story. However, that was how it operated in the past. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, overseas companies, and the billionaires that control them, are able to litigate against governments for the laws they pass, at private courts composed of corporate lawyers. These proceedings are conducted in secret. Differing from national judiciaries, these panels allow no opportunity to appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. The door is open exclusively to entities registered abroad.

When a secret court determines that a government measure may compromise the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These awards are based not on real financial harm but money the arbitrators conclude the company might otherwise have made. The government might be compelled to abandon its policy. It will be hesitant to introducing similar legislation along the same lines, for fear of facing litigation.

A Process Running Rampant

Unprecedented levels of legal actions are being brought, as firms learn from each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The outcome? Democratic sovereignty and democratic governance are now too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the rulings made by parliaments is that this clause has been written – without democratic mandate, and frequently under an atmosphere of profound opacity – inside trade treaties.

A Concrete Instance: The Cumbrian Coalmine

A year ago, environmental campaigners won a great victory at the senior court. The judge found that schemes to dig the first deep coalmine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine would have zero effect on national carbon targets. The Labour government subsequently revoked the licence the Tories had issued. Today, this legal outcome could be compromised by an secret arbitration panel answering to exclusively the companies petitioning it.

During August, a corporate entity whose ultimate owners are based in the Cayman Islands filed a lawsuit challenging the UK government. Last week a tribunal in the United States was convened to hear it.

This firm is seeking compensation from the UK for the money it would have generated if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. Which individual is representing it against the British government? An elected representative, and ex-law officer in the Conservative government, that great patriot Sir Geoffrey Cox. The state makes a decision, the domestic court supports it, then a overseas corporation disputes it through an secretive private court, and a member of our parliament acts on its behalf.

The Russian Lawsuit

Concurrently that the panel on the coalmine case was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case at present, but it is highly possible that he may employ the ISDS mechanism to fight the penalties the UK imposed on him subsequent to the Russian aggression. He has already started suing another European state for this reason, seeking a colossal sum: an amount representing half government’s yearly income. Part of the legal team representing him there? a prominent lawyer, married to the former British prime minister.

Trade specialists believe that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over sovereign states might be preventing the money Ukraine desperately needs.

Misleading Claims and Mounting Risks

The public was told that such things wouldn’t happen. Years ago, a government leader, advocating for the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this matter accused campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies grasp the influence they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with widespread derision.

That prediction has now materialised. In the current period, oil and gas and resource corporations have filed a record number of suits against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – state efforts to halt environmental catastrophe. Companies have so far won vast sums by using ISDS, of which oil majors have secured the majority. That represents the combined GDP