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How do you perceive our system of government functions? It could be similar to this. We elect MPs. They legislate on bills. When a majority is achieved, the bills pass into law. The law are enforced by the courts. Simple as that. Well, that’s how it operated in the past. Those days are over.

The Advent of Secret Arbitration Panels

Today, overseas companies, and the oligarchs who own them, have the power to sue nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. The cases are held behind closed doors. Unlike our courts, these panels allow no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, including companies based in this country. They are open only to businesses registered abroad.

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

This compensation represent not tangible damages but money the arbitrators conclude the company could potentially have made. The administration could be forced to rescind the measure. It becomes hesitant to enacting future policies in that area, due to the risk of facing litigation.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as corporations learn from each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The outcome? National sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the rulings made by legislatures is that this clause has been inserted – without democratic mandate, and typically amid conditions of total confidentiality – inside trade treaties.

A Real-World Instance: The UK Coal Mine

Last year, environmental campaigners secured a significant win at the high court. The judge ruled that plans to excavate the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine would have had zero effect on climate commitments. The new government then withdrew the permission the former government had granted. Now, this victory is under threat by an foreign court accountable to exclusively the corporations bringing the case.

During August, a firm whose beneficial owners reside in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

This firm is suing the UK for the revenue it might have made if the mine had been permitted to proceed. The public has little idea how much this could amount to. Who is serving as its counsel challenging the state? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the domestic court validates it, then a overseas corporation contests it through an unaccountable private court, and a member of our parliament works for its behalf.

The Russian Challenge

Concurrently that the court on the mining lawsuit was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case so far, but it is highly possible that he’ll use the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the invasion of Ukraine. He has started suing Luxembourg for this reason, seeking sixteen billion dollars: an amount representing half state's annual revenue. Among the legal team representing him there? the wife of a former prime minister, spouse of the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized Russian assets as security for its financial support package arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over elected governments could be blocking the money Ukraine urgently requires.

Misleading Claims and Escalating Threats

Politicians promised that these scenarios could not occur. Years ago, a former prime minister, championing the largest and riskiest of all these agreements, stated: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” A consultant on this issue described critics of “alarmism … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “when companies grasp the power they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were greeted by scepticism.

That threat is now a reality. Recently, fossil fuel and extraction companies have filed a unprecedented number of suits against nations across the economic spectrum, opposing – as in the case of the Whitehaven project – government attempts to halt global warming. Corporations have so far won vast sums through ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP