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How do you reckon our system of government functions? Perhaps something like this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills become law. Legislation is upheld by the courts. That's it. Well, that used to be how it operated in the past. Those days are over.

The Rise of Secret Arbitration Panels

Today, overseas companies, along with the oligarchs that control them, can sue nation states for the laws they pass, at private courts composed of commercial attorneys. The cases take place in secret. Differing from national judiciaries, these tribunals provide no avenue for appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even enterprises based in this country. The door is open exclusively to businesses based overseas.

Should an arbitration panel determines that a law or policy may compromise the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, even billions.

This compensation are based not on actual losses but funds the panel members determine the company might otherwise have made. The state may have to drop the legislation. It will be hesitant to passing future laws along the same lines, due to the risk of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being brought, as companies learn from each other, and investment funds fund legal actions in return for a cut of the takings. The result? National sovereignty and democratic governance are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the rulings taken by elected bodies is that this clause has been inserted – absent public approval, and frequently under conditions of profound opacity – inside bilateral investment treaties.

A Specific Example: The Cumbrian Coal Mine

Last year, activists won a great victory at the senior court. The judge found that proposals to dig the first deep coalmine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the Conservative government, which had agreed to the questionable argument that the mine would have had zero effect on our carbon budgets. The new government subsequently revoked the licence the previous administration had granted. Currently, this success is under threat by an foreign court reporting to exclusively the companies bringing the case.

Last August, a company whose ultimate owners are based in the tax haven initiated proceedings challenging the UK government. Last week a dispute settlement body in the United States was set up to consider the case.

The claimant is suing the UK for the revenue it would have generated if the mine had been allowed to proceed. The public has little idea how much this sum represents. What legal team is acting on its behalf challenging the British government? A sitting MP, and former attorney-general in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the domestic court supports it, then a international entity challenges it through an undemocratic arbitration panel, and a elected official acts on its behalf.

A Sanctions Case

Simultaneously that the court on the coal mine dispute was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. Details are nothing of the case so far, but it seems likely that he may employ the tribunal to challenge the sanctions the UK imposed on him after the war in Ukraine. He has previously started suing Luxembourg on these grounds, seeking a colossal sum: an amount representing half nation's yearly income. Included in the legal team acting for him in that case? the wife of a former prime minister, married to the previous PM.

International law scholars contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments might be preventing the funds Ukraine critically depends on.

Empty Promises and Mounting Costs

We were assured that these scenarios were not possible. Years ago, a senior politician, promoting the most significant and hazardous of all such treaties, declared: “Britain has agreed to investment treaty upon trade deal and there has not been a issue in the past.” An expert on this issue described activists of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “once firms begin to understand the power they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were met with scepticism.

That warning has come to pass. Recently, fossil fuel and mining firms have filed a unprecedented number of claims against nations both wealthy and developing, challenging – as in the case of the UK mine – state efforts to halt environmental catastrophe. Firms have thus far won $114bn through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP