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Can you perceive our system of government works? Perhaps something like this. We elect MPs. They vote on bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Those days are over.

The Rise of Secret Arbitration Panels

In the modern era, international firms, or the wealthy individuals who own them, can sue nation states for the regulations they pass, at offshore tribunals staffed by corporate lawyers. The cases take place behind closed doors. In contrast to domestic courts, these tribunals provide no opportunity to appeal or judicial review. You or I cannot take a case to them, nor can our government, including businesses operating from this country. The door is open only to entities based overseas.

Should an arbitration panel rules that a government measure could harm the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These sums represent not actual losses but funds the tribunal officials decide the company might otherwise have made. The state may have to rescind the measure. It is hesitant to passing future laws of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies observe each other, and private equity finance suits in return for a share of the awards. The result? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the decisions taken by parliaments is that this stipulation has been incorporated – absent public approval, and frequently under a climate of profound opacity – within trade treaties.

A Specific Case: The UK Coal Mine

Twelve months ago, activists secured a significant win at the high court. The presiding officer found that schemes to open the first deep coalmine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no impact on our carbon budgets. The new government then withdrew the consent the Tories had issued. Currently, this success faces being overturned by an foreign court accountable to no one but the companies bringing the case.

Last August, a company whose ultimate owners are located in the tax haven lodged a claim challenging the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the money it could have earned if the mine had received permission to proceed. We have no idea how much this might be. What legal team is acting on its behalf challenging the state? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the domestic court upholds it, then a international entity challenges it through an secretive arbitration panel, and a sitting MP acts on its behalf.

The Russian Challenge

On the same day that the court on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he may employ the ISDS mechanism to challenge the sanctions the UK levied against him after the invasion of Ukraine. He has previously filed a claim against another European state on these grounds, claiming a colossal sum: equivalent to half of nation's yearly income. Included in the lawyers representing him there? Cherie Blair, wife of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its loan to Ukraine stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over democratic administrations may be obstructing the money Ukraine urgently requires.

Empty Promises and Growing Costs

The public was told that these scenarios could not occur. Years ago, a former prime minister, promoting the largest and riskiest of all investment pacts, declared: “We’ve signed investment treaty upon trade deal and we have never seen a case in the past.” A consultant on this matter labelled activists of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries needed to fear ISDS claims. Predictions that “as corporations start to realise the authority they’ve been granted, they will shift their focus from the poorer states to the developed economies” were met with widespread derision.

That threat has come to pass. This year, oil and gas and resource corporations have filed a record number of cases against nations rich and poor, challenging – similar to the Cumbrian coalmine – government attempts to stop global warming. Corporations have thus far won $114bn via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP