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Can you reckon our political system works? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. End of story. However, that’s how it used to work. No longer.

The Rise of Shadow Arbitration Panels

Today, international firms, along with the billionaires that control them, have the power to sue nation states for the laws they pass, at secret arbitration panels composed of commercial attorneys. These proceedings are conducted behind closed doors. Unlike our courts, these tribunals grant 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 companies headquartered in this country. They are open exclusively to entities based overseas.

When a secret court determines that a law or policy might diminish the corporation’s expected profits, it can award compensation of hundreds of millions, potentially billions.

These awards represent not tangible damages but money the arbitrators decide the company would perhaps have made. The administration might be compelled to drop the legislation. It will be hesitant to passing future laws along the same lines, due to the risk of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being brought, as companies take cues from each other, and hedge funds finance suits in exchange for a share of the takings. The result? National sovereignty and democratic governance are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the decisions taken by legislatures is that this clause has been incorporated – without democratic mandate, and often in a climate of total confidentiality – into bilateral investment treaties.

A Concrete Example: The Cumbrian Coalmine

A year ago, activists secured a significant win at the high court. The justice ruled that proposals to excavate the first new deep coal mine in the UK for three decades, in Cumbria, were wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on our carbon budgets. The Labour government subsequently revoked the permission the previous administration had issued. Now, this victory is under threat by an offshore tribunal reporting to no one but the entities filing the suit.

In August, a firm whose ultimate owners are located in the tax haven initiated proceedings challenging the UK government. The previous week a dispute settlement body in Washington DC was set up to adjudicate on it.

The company is litigating against the UK for the money it could have earned if the mine had been permitted to go ahead. Citizens have no idea how much this might be. Who is serving as its counsel challenging the state? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The state enacts a policy, the domestic court upholds it, then a international entity challenges it through an unaccountable private court, and a elected official represents its behalf.

A Sanctions Case

Concurrently that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he’ll use the tribunal to challenge the restrictions the UK enacted against him after the war in Ukraine. He has already filed a claim against Luxembourg on these grounds, claiming a colossal sum: an amount representing half nation's annual revenue. Included in the legal team acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

Legal experts contend that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package stems from apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over democratic administrations might be preventing the finance Ukraine critically depends on.

False Assurances and Growing Threats

We were assured that such things wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, told us: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” A consultant on this matter labelled critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “once firms begin to understand the authority they now possess, they will redirect their efforts from the poorer states to the wealthy nations” were dismissed with scepticism.

That warning is now a reality. This year, energy and mining firms have initiated a record number of claims against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – government attempts to prevent global warming. Corporations have thus far won vast sums by using ISDS, of which energy giants have secured $84bn. That equates to the combined GDP