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Can you reckon our political system works? Maybe along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. That's it. Well, that was how it operated in the past. Not anymore.

The Rise of Offshore Arbitration Panels

Today, international firms, and the oligarchs that control them, can sue governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held in secret. Unlike our courts, these panels provide no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, including companies operating from this country. They are open only to businesses registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s projected profits, it has the power to grant financial penalties of vast sums, even billions.

This compensation are based not on tangible damages but funds the panel members conclude the company might otherwise have made. The administration may have to rescind the measure. It will be deterred from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of cases are being filed, as companies learn from each other, and private equity bankroll lawsuits in return for a portion of the awards. The outcome? Democratic sovereignty and democratic governance are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede domestic law and the choices made by elected bodies is that this clause has been written – without democratic mandate, and typically amid conditions of profound opacity – into trade treaties.

A Real-World Case: The Cumbrian Coal Mine

Last year, environmental campaigners won a great victory at the high court. The judge found that proposals to excavate the first new deep coal mine in the UK for three decades, in northwest England, were found to be wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration then withdrew the licence the former government had issued. Currently, this victory is under threat by an secret arbitration panel reporting to no one but the entities bringing the case.

In August, a firm whose final controllers are located in the tax haven initiated proceedings against the UK government. Recently a arbitration panel in the United States was established to hear it.

The company is litigating against the UK for the profits it could have earned if the mine had been allowed to proceed. The public has no idea how much this could amount to. Who is representing it in opposition to the British government? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The state passes a law, the high court supports it, then a foreign company disputes it through an unaccountable arbitration panel, and a elected official works for its behalf.

An Oligarch's Case

On the same day that the court on the mining lawsuit was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know little of the case at present, but it appears probable that he will utilise the ISDS mechanism to fight the restrictions the UK enacted against him subsequent to the war in Ukraine. He has previously initiated proceedings against another European state on these grounds, demanding $16bn: equivalent to half of government’s yearly budget. Included in the legal team on his side? a prominent lawyer, spouse of the previous PM.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over sovereign states could be blocking the finance Ukraine desperately needs.

Misleading Claims and Escalating Costs

We were assured that such things were not possible. In 2014, a government leader, championing the largest and riskiest of all such treaties, stated: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An adviser on this topic accused critics of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries had to worry about these lawsuits. Predictions that “as corporations start to realise the power they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were met with scepticism.

That warning is now a reality. Recently, oil and gas and extraction companies have filed a record number of claims against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Corporations have so far won $114bn via ISDS, of which energy giants have been awarded $84bn. That equates to the combined GDP