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What is your understand our system of government works? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills become law. The law are enforced by the courts. That's it. Yet, that’s how it once functioned. No longer.

The Advent of Secret Arbitration Panels

Today, international firms, and the wealthy individuals that control them, can sue nation states for the regulations they pass, at private courts staffed by commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these panels provide no avenue for appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even companies operating from this country. They are open solely for entities based overseas.

Should an arbitration panel finds that a government measure could harm the corporation’s expected profits, it has the power to grant financial penalties of vast sums, even billions.

This compensation represent not real financial harm but compensation the tribunal officials decide the company might otherwise have made. The state might be compelled to drop the legislation. It is discouraged from enacting future policies in that area, worried about incurring a lawsuit.

A Process Growing Exponentially

Historically high figures of legal actions are being brought, as firms observe each other, and hedge funds bankroll lawsuits in return for a portion of the settlements. The consequence? Democratic sovereignty and democratic governance are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the decisions taken by legislatures is that this provision has been written – without public consent, and frequently under conditions of total confidentiality – into international trade agreements.

A Concrete Example: The UK Coalmine

Last year, a conservation group secured a significant win at the senior court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine could have no impact on climate commitments. The incoming administration then withdrew the licence the former government had issued. Now, this legal outcome is under threat by an secret arbitration panel answering to no one but the entities bringing the case.

Last August, a company whose final controllers are located in the offshore financial centre lodged a claim versus the UK government. Last week a tribunal in the US capital was established to consider the case.

This firm is suing the UK for the revenue it would have generated if the mine had received permission to proceed. We have no idea how much this could amount to. Who is acting on its behalf in opposition to the British government? A member of parliament, and former attorney-general in the outgoing administration, that great patriot the MP. The government passes a law, 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.

A Sanctions Case

On the same day that the panel on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it appears probable that he will utilise the ISDS mechanism to fight the sanctions the UK imposed on him after the invasion of Ukraine. He has previously filed a claim against Luxembourg with similar intent, seeking a colossal sum: half that nation's yearly budget. Among the lawyers representing him there? the wife of a former prime minister, married to the former British prime minister.

Trade specialists believe that the EU’s hesitation in using frozen oligarchs' funds as collateral for its financial support package is due to apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations could be blocking the funds Ukraine desperately needs.

Empty Promises and Escalating Risks

The public was told that these events could not occur. Previously, a senior politician, advocating for the biggest and most dangerous of all such treaties, stated: “The UK has signed investment treaty upon trade deal and there has not been a problem in the past.” An expert on this issue described activists of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “once firms begin to understand the power they now possess, they will redirect their efforts from the weak nations to the strong ones” were greeted by widespread derision.

That prediction has come to pass. This year, oil and gas and extraction companies have initiated a record number of cases against nations rich and poor, contesting – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Companies have so far won vast sums via ISDS, of which oil majors have obtained $84bn. That represents the combined GDP