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What is your reckon our political system functions? It could be similar to this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. Yet, that’s how it operated in the past. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, international firms, along with the billionaires who own them, can sue nation states for the regulations they pass, at secret arbitration panels composed of corporate lawyers. These proceedings are held behind closed doors. Differing from national judiciaries, these bodies provide no opportunity to appeal or judicial review. You or I are unable to file a case to them, nor can our government, including companies headquartered in this country. Access is granted only to businesses registered abroad.

Should an arbitration panel rules that a law or policy might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, running into billions.

These sums are based not on real financial harm but compensation the panel members decide the company might otherwise have made. The state could be forced to rescind the measure. It is hesitant to introducing similar legislation of a similar nature, for fear of being sued.

A Process Running Rampant

Unprecedented levels of legal actions are being initiated, as companies observe each other, and hedge funds fund legal actions in exchange for a share of the awards. The consequence? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the decisions enacted by elected bodies is that this stipulation has been incorporated – absent public approval, and typically amid conditions of total confidentiality – into international trade agreements.

A Real-World Instance: The Whitehaven Coalmine

A year ago, a conservation group secured a significant win at the senior court. The justice found that plans to open the first new deep coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine could have no consequence on our carbon budgets. The Labour government later cancelled the licence the former government had granted. Currently, this victory faces being overturned by an offshore tribunal reporting to no one but the entities petitioning it.

Last August, a company whose beneficial owners are located in the offshore financial centre filed a lawsuit challenging the UK government. Last week a dispute settlement body in the United States was convened to hear it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to proceed. Citizens have little idea how much this could amount to. Who is acting on its behalf challenging the UK administration? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The government makes a decision, the national judiciary validates it, then a foreign company challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Case

Simultaneously that the court on the coal mine dispute was appointed, it was revealed 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’ll use the tribunal to contest the sanctions the UK imposed on him after the war in Ukraine. He has filed a claim against Luxembourg on these grounds, seeking $16bn: equivalent to half of state's annual revenue. Included in the lawyers representing him there? Cherie Blair, wife of the previous PM.

Trade specialists believe that the EU’s procrastination in leveraging immobilised Russian assets as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments may be obstructing the finance Ukraine desperately needs.

False Assurances and Mounting Costs

We were assured that these events could not occur. Previously, a senior politician, championing the most significant and hazardous of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has never been a case in the past.” A consultant on this issue accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that solely developing countries needed to fear these lawsuits. Warnings that “when companies start to realise the authority they now possess, they will redirect their efforts from the weak nations to the strong ones” were met with scepticism.

That prediction has come to pass. This year, energy and resource corporations have initiated a historic level of cases against nations rich and poor, challenging – like the example of the Whitehaven project – government attempts to halt environmental catastrophe. Firms have so far won $114bn via ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP