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Can you perceive our political system works? It could be similar to this. We elect MPs. They legislate on bills. Should a majority is secured, the bills become law. Legislation is maintained by the courts. Simple as that. However, that used to be how it operated in the past. Those days are over.

The Advent of Offshore Arbitration Panels

Today, international firms, or the oligarchs behind them, are able to litigate against governments for the laws they pass, at offshore tribunals made up of corporate lawyers. These proceedings are conducted behind closed doors. Unlike our courts, these panels grant no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies based in this country. They are open solely for corporations registered abroad.

When a secret court finds that a government measure might diminish the corporation’s projected profits, it can award financial penalties of vast sums, running into billions.

These sums are based not on actual losses but funds the arbitrators determine the company could potentially have made. The government might be compelled to drop the legislation. It is hesitant to enacting future policies in that area, due to the risk of being sued.

A Mechanism Growing Exponentially

Record numbers of cases are being filed, as corporations take cues from each other, and hedge funds fund legal actions in exchange for a portion of the settlements. The consequence? Democratic sovereignty and popular rule are now unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede a country's own laws and the decisions enacted by parliaments is that this clause has been inserted – without democratic mandate, and typically amid an atmosphere of profound opacity – within bilateral investment treaties.

A Concrete Case: The Whitehaven Coalmine

Last year, activists won a great victory at the high court. The justice ruled that schemes to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine would have had no impact on our carbon budgets. The incoming administration subsequently revoked the permission the previous administration had approved. Today, this success faces being overturned by an secret arbitration panel accountable to no one but the entities bringing the case.

During August, a corporate entity whose beneficial owners are located in the tax haven initiated proceedings versus the UK government. Recently a dispute settlement body in the United States was set up to hear it.

This firm is litigating against the UK for the revenue it would have generated if the mine had been permitted to go ahead. We have no clear indication how much this sum represents. What legal team is serving as its counsel against the state? An elected representative, and former attorney-general in the Conservative government, that great patriot Sir Geoffrey Cox. The state makes a decision, the national judiciary supports it, then a international entity contests it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

The Russian Challenge

On the same day that the tribunal on the coal mine dispute was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case at present, but it appears probable that he will utilise the arbitration process to contest the penalties the UK enacted against him following the invasion of Ukraine. He has previously initiated proceedings against another European state on these grounds, claiming sixteen billion dollars: an amount representing half nation's yearly budget. Included in the lawyers representing him there? Cherie Blair, wife of the previous PM.

International law scholars believe that the EU’s procrastination in utilising seized Russian assets as security for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations might be preventing the funds Ukraine critically depends on.

Empty Promises and Growing Costs

The public was told that these events could not occur. Years ago, a former prime minister, championing the largest and riskiest of all these agreements, told us: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this issue labelled critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about ISDS claims. Predictions that “when companies start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the strong ones” were dismissed with widespread derision.

That threat has now materialised. In the current period, oil and gas and mining firms have initiated a historic level of cases against nations both wealthy and developing, challenging – like the example of the Whitehaven project – official measures to prevent climate breakdown. Companies have thus far won vast sums through ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP