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How do you reckon our political system functions? It could be similar to this. The public votes for MPs. They vote on bills. If a majority is secured, the bills become law. Statutes are enforced by the courts. End of story. Yet, that’s how it operated in the past. No longer.

The Rise of Shadow Arbitration Panels

In the modern era, foreign corporations, along with the oligarchs behind them, are able to litigate against elected administrations for the policies they pass, at private courts composed of business advocates. These proceedings take place behind closed doors. Unlike our courts, these panels grant no avenue for appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. They are open only to corporations registered abroad.

If a tribunal rules that a government measure could harm the corporation’s expected profits, it can award damages of hundreds of millions of pounds, potentially billions.

These sums constitute not tangible damages but money the tribunal officials decide the company could potentially have made. The government may have to drop the legislation. It becomes deterred from enacting future policies of a similar nature, worried about incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of disputes are being brought, as corporations take cues from each other, and hedge funds fund legal actions for a share of a portion of the settlements. The consequence? Sovereignty and popular rule are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the choices enacted by elected bodies is that this clause has been written – without democratic mandate, and typically amid a climate of extreme secrecy – within trade treaties.

A Real-World Case: The Cumbrian Coalmine

Last year, a conservation group won a great victory 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 unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine would have zero effect on climate commitments. The incoming administration subsequently revoked the consent the Tories had approved. Today, this success is under threat by an foreign court accountable to exclusively the corporations bringing the case.

Last August, a company whose final controllers reside in the tax haven initiated proceedings challenging the UK government. Last week a arbitration panel in Washington DC was established to consider the case.

The company is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to go ahead. We have little idea how much this sum represents. Who is serving as its counsel challenging the state? An elected representative, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The administration passes a law, the domestic court supports it, then a foreign company contests it through an secretive private court, and a elected official acts on its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case to date, but it seems likely that he’ll use the tribunal to fight the penalties the UK levied against him following the war in Ukraine. He has already initiated proceedings against another European state with similar intent, claiming sixteen billion dollars: half that nation's yearly budget. Part of the legal team representing him there? Cherie Blair, wife of the former British prime minister.

Trade specialists argue that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over sovereign states might be preventing the finance Ukraine desperately needs.

Empty Promises and Growing Costs

Politicians promised that these events wouldn’t happen. Previously, a government leader, advocating for the biggest and most dangerous of all these agreements, declared: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An adviser on this topic labelled activists of “alarmism … 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. Warnings that “when companies begin to understand the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with scepticism.

That threat has now materialised. In the current period, fossil fuel and resource corporations have filed a record number of claims against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – official measures to prevent climate breakdown. Companies have to date won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained the majority. That represents the combined GDP