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How do you understand our system of government functions? Maybe similar to this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills become law. Legislation are enforced by the courts. That's it. However, that used to be how it operated in the past. Those days are over.

The Emergence of Secret Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs that control them, can sue governments for the laws they pass, at private courts composed of business advocates. These proceedings take place behind closed doors. In contrast to domestic courts, these tribunals provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even enterprises based in this country. The door is open only to businesses registered abroad.

If a tribunal determines that a legislative action may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These awards constitute not real financial harm but compensation the arbitrators conclude the company might otherwise have made. The state could be forced to rescind the measure. It becomes discouraged from passing future laws in that area, due to the risk of being sued.

A Process Running Rampant

Record numbers of disputes are being brought, as corporations learn from each other, and private equity fund legal actions in exchange for a share of the awards. The consequence? Democratic sovereignty and popular rule are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the rulings enacted by legislatures is that this provision has been written – without public consent, and often in an atmosphere of profound opacity – inside international trade agreements.

A Concrete Instance: The Cumbrian Coal Mine

Last year, a conservation group won a great victory at the high court. The judge ruled that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had no consequence on climate commitments. The new government then withdrew the permission the previous administration had approved. Now, this legal outcome could be compromised by an foreign court reporting to no one but the companies bringing the case.

During August, a corporate entity whose ultimate owners reside in the offshore financial centre lodged a claim against the UK government. The previous week a dispute settlement body in the US capital was established to consider the case.

This firm is seeking compensation from the UK for the money it would have generated if the mine had received permission to proceed. We have no clear indication how much this might be. What legal team is representing it against the state? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The administration passes a law, the high court supports it, then a overseas corporation contests it through an undemocratic arbitration panel, and a sitting MP represents its behalf.

An Oligarch's Case

On the same day that the tribunal on the coalmine case was established, 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 at present, but it seems likely that he’ll use the tribunal to challenge the penalties the UK enacted against him following the war in Ukraine. He has previously initiated proceedings against another European state with similar intent, claiming sixteen billion dollars: an amount representing half nation's yearly budget. Part of the lawyers acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists argue that the EU’s delay in leveraging immobilised oligarchs' funds as guarantee for its financial support package is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the finance Ukraine urgently requires.

Empty Promises and Escalating Risks

Politicians promised that these scenarios wouldn’t happen. Years ago, a senior politician, championing the largest and riskiest of all such treaties, declared: “Britain has agreed to trade deal upon trade deal and there has not been a problem in the past.” An adviser on this topic labelled activists of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “when companies begin to understand the authority they now possess, they will shift their focus from the weak nations to the strong ones” were met with widespread derision.

That warning has come to pass. Recently, energy and resource corporations have initiated a record number of suits against nations both wealthy and developing, challenging – like the example of the Whitehaven project – official measures to prevent environmental catastrophe. Corporations have thus far won vast sums via ISDS, of which oil majors have obtained the majority. That equates to the combined GDP