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Can you understand our system of government works? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. Yet, that’s how it operated in the past. Those days are over.

The Emergence of Offshore Arbitration Panels

In the modern era, international firms, or the billionaires behind them, are able to litigate against elected administrations for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes take place in secret. In contrast to domestic courts, these bodies grant no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even businesses based in this country. The door is open solely for businesses based overseas.

Should an arbitration panel finds that a legislative action may compromise the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, even billions.

These awards constitute not actual losses but funds the arbitrators conclude the company could potentially have made. The government could be forced to abandon its policy. It is deterred from introducing similar legislation along the same lines, for fear of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being brought, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The consequence? Sovereignty and democracy are turning into unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the decisions made by parliaments is that this clause has been incorporated – without public consent, and frequently under a climate of total confidentiality – into international trade agreements.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the high court. The judge found that proposals to open the first major coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The Labour government later cancelled the consent the previous administration had issued. Currently, this success is under threat by an foreign court accountable to only the corporations petitioning it.

In August, a corporate entity whose beneficial owners are based in the Cayman Islands filed a lawsuit versus the UK government. Recently a arbitration panel in the United States was set up to adjudicate on it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. We have little idea how much this sum represents. Which individual is acting on its behalf against the UK administration? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot the MP. The administration passes a law, the high court validates it, then a foreign company contests it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Challenge

Concurrently that the panel on the coalmine case was established, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to fight the sanctions the UK levied against him following the invasion of Ukraine. He has previously initiated proceedings against a small nation on these grounds, seeking a colossal sum: an amount representing half nation's yearly budget. Included in the lawyers on his side? Cherie Blair, spouse of the previous PM.

Legal experts argue that the EU’s hesitation in utilising seized Russian assets as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states could be blocking the funds Ukraine critically depends on.

False Assurances and Mounting Risks

We were assured that these scenarios were not possible. Previously, a senior politician, advocating for the largest and riskiest of all such treaties, told us: “The UK has signed trade agreement upon trade deal and we have never seen a problem in the past.” An expert on this matter accused critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “when companies begin to understand the authority they now possess, they will redirect their efforts from the poorer states to the developed economies” were met with scepticism.

That threat is now a reality. In the current period, energy and extraction companies have filed a historic level of cases against nations rich and poor, challenging – similar to the UK mine – state efforts to halt climate breakdown. Firms have so far won $114bn via ISDS, of which oil majors have obtained eighty-four billion dollars. That represents the combined GDP