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How do you understand our system of government works? Maybe along the lines of this. We elect MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. End of story. However, that used to be how it operated in the past. Those days are over.

The Advent of Secret Arbitration Panels

Nowadays, foreign corporations, and the wealthy individuals behind them, can sue governments for the regulations they pass, at private courts composed of business advocates. The cases are conducted away from public scrutiny. Differing from national judiciaries, these panels grant no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises operating from this country. Access is granted only to corporations registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s expected profits, it can award financial penalties of hundreds of millions, potentially billions.

This compensation constitute not tangible damages but compensation the panel members determine the company would perhaps have made. The administration might be compelled to drop the legislation. It will be discouraged from introducing similar legislation in that area, worried about incurring a lawsuit.

A Process Running Rampant

Record numbers of cases are being filed, as corporations observe each other, and private equity bankroll lawsuits in return for a portion of the takings. The outcome? National sovereignty and democratic governance are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede a country's own laws and the decisions taken by elected bodies is that this stipulation has been inserted – without democratic mandate, and typically amid conditions of profound opacity – inside international trade agreements.

A Concrete Instance: The UK Coalmine

Last year, activists won a great victory at the high court. The judge found that plans to open the first new deep coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have no impact on climate commitments. The new government subsequently revoked the permission the former government had approved. Now, this victory faces being overturned by an secret arbitration panel answering to exclusively the entities petitioning it.

In August, a company whose beneficial owners reside in the tax haven filed a lawsuit versus the UK government. Last week a tribunal in the US capital was set up to consider the case.

The claimant is litigating against 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 might be. What legal team is representing it challenging the UK administration? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The state makes a decision, the national judiciary supports it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

The Russian Case

On the same day that the panel on the coal mine dispute was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case so far, but it seems likely that he’ll use the arbitration process to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has started suing another European state with similar intent, claiming $16bn: an amount representing half state's yearly budget. Among the lawyers representing him there? a prominent lawyer, married to the former British prime minister.

International law scholars argue that the EU’s delay in using frozen oligarchs' funds as security for its loan to Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

Empty Promises and Escalating Threats

Politicians promised that such things could not occur. Previously, a former prime minister, championing the largest and riskiest of all investment pacts, declared: “The UK has signed investment treaty upon trade deal and there has never been a problem in the past.” An adviser on this topic labelled campaigners of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states should be concerned by these lawsuits. Predictions that “once firms start to realise the authority they now possess, they will redirect their efforts from the poorer states to the developed economies” were met with widespread derision.

That warning has come to pass. This year, oil and gas and extraction companies have initiated a record number of suits against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – state efforts to prevent climate breakdown. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP