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Can you perceive our system of government functions? It could be something like this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills become law. Legislation are enforced by the courts. Simple as that. Yet, that was how it used to work. Not anymore.

The Advent of Offshore Arbitration Panels

Today, overseas companies, or the oligarchs that control them, can sue nation states for the policies they pass, at private courts made up of commercial attorneys. Such disputes are held behind closed doors. Differing from national judiciaries, these bodies provide no right of appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even enterprises based in this country. Access is granted only to entities based overseas.

Should an arbitration panel determines that a government measure may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions of pounds, even billions.

These sums represent not real financial harm but money the arbitrators decide the company could potentially have made. The state could be forced to abandon its policy. It is hesitant to passing future laws in that area, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of disputes are being brought, as firms observe each other, and investment funds fund legal actions in return for a cut of the awards. The result? Democratic sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the rulings taken by legislatures is that this provision has been inserted – absent public approval, and typically amid an atmosphere of extreme secrecy – inside trade treaties.

A Concrete Instance: The UK Coal Mine

Last year, a conservation group won a great victory at the high court. The judge determined that schemes to open the first deep coalmine in the UK for 30 years, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have no consequence on climate commitments. The Labour government later cancelled the licence the Tories had approved. Currently, this legal outcome faces being overturned by an secret arbitration panel answering to only the corporations filing the suit.

During August, a firm whose beneficial owners are based in the Cayman Islands initiated proceedings versus the UK government. Recently a dispute settlement body in the US capital was set up to consider the case.

The claimant is suing the UK for the money it might have made if the mine had received permission to proceed. The public has no idea how much this sum represents. What legal team is acting on its behalf against the UK administration? A sitting MP, and former attorney-general in the Conservative government, the self-proclaimed patriot the MP. The administration passes a law, the national judiciary supports it, then a overseas corporation contests it through an unaccountable private court, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK enacted against him subsequent to the Russian aggression. He has already initiated proceedings against Luxembourg on these grounds, claiming a colossal sum: equivalent to half of nation's yearly income. Among the legal team on his side? Cherie Blair, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in using frozen oligarchs' funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the money Ukraine critically depends on.

False Assurances and Mounting Costs

Politicians promised that these events could not occur. Previously, a senior politician, advocating for the most significant and hazardous of all such treaties, declared: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An adviser on this matter accused activists of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that only poorer nations needed to fear such legal actions. Predictions that “when companies start to realise the authority they now possess, they will shift their focus from the vulnerable countries to the developed economies” were greeted by widespread derision.

That warning is now a reality. Recently, fossil fuel and mining firms have initiated a record number of cases against nations rich and poor, contesting – similar to the Cumbrian coalmine – official measures to halt environmental catastrophe. Corporations have to date won vast sums through ISDS, of which fossil fuel companies have secured $84bn. That is equivalent to the combined GDP