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Can you reckon our system of government operates? Perhaps similar to this. We elect MPs. They vote on bills. Should a majority is obtained, the bills become law. Legislation is maintained by the courts. That's it. Yet, that was how it operated in the past. No longer.

The Emergence of Secret Arbitration Panels

In the modern era, international firms, and the wealthy individuals that control them, have the power to sue nation states for the laws they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings take place behind closed doors. In contrast to domestic courts, these tribunals allow no avenue for appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, or even enterprises operating from this country. They are open exclusively to businesses based overseas.

Should an arbitration panel rules that a government measure could harm the corporation’s expected profits, it may order damages of vast sums, running into billions.

These awards are based not on tangible damages but compensation the arbitrators conclude the company might otherwise have made. The state may have to drop the legislation. It will be discouraged from introducing similar legislation in that area, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of disputes are being filed, as firms observe each other, and hedge funds finance suits for a share of a cut of the takings. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the decisions enacted by legislatures is that this stipulation has been written – without democratic mandate, and often in conditions of extreme secrecy – into bilateral investment treaties.

A Concrete Instance: The UK Coalmine

Last year, a conservation group won a great victory at the senior court. The presiding officer ruled that proposals to excavate the first deep coalmine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no impact on our carbon budgets. The new government subsequently revoked the consent the Tories had granted. Now, this legal outcome faces being overturned by an offshore tribunal answering to only the entities petitioning it.

In August, a company whose ultimate owners reside in the Cayman Islands filed a lawsuit against the UK government. Recently a tribunal in the United States was set up to adjudicate on it.

The company is litigating against the UK for the profits it could have earned if the mine had been allowed to commence operations. Citizens have no clear indication how much this might be. What legal team is representing it against the UK administration? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The administration enacts a policy, the high court supports it, then a international entity contests it through an undemocratic private court, and a sitting MP represents its behalf.

The Russian Case

Concurrently that the panel on the coalmine case was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case to date, but it appears probable that he will utilise the arbitration process to contest the restrictions the UK levied against him following the war in Ukraine. He has started suing a small nation for this reason, demanding a colossal sum: half that state's yearly budget. Part of the lawyers acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in using frozen state funds as guarantee for its financial support package arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the finance Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that these events were not possible. In 2014, a government leader, championing the most significant and hazardous of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An adviser on this matter accused activists of “alarmism … in reality, ISDS does not affect the UK much”. The overall message seemed to be that exclusively weaker states needed to fear ISDS claims. Warnings that “once firms start to realise the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were met with scepticism.

That threat has now materialised. In the current period, energy and mining firms have lodged a record number of claims against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – official measures to stop global warming. Companies have so far won $114bn through ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP