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How do you understand our system of government operates? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. However, that’s how it used to work. Not anymore.

The Emergence of Secret Arbitration Panels

Nowadays, foreign corporations, along with the billionaires behind them, can sue governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. The cases are held in secret. In contrast to domestic courts, these bodies grant no right of appeal or judicial review. You or I cannot take a case to them, nor can our government, or even businesses headquartered in this country. They are open solely for entities based overseas.

When a secret court determines that a government measure might diminish the corporation’s projected profits, it has the power to grant damages of vast sums, potentially billions.

This compensation constitute not tangible damages but funds the panel members decide the company might otherwise have made. The state may have to abandon its policy. It will be deterred from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as companies observe each other, and private equity fund legal actions in return for a cut of the awards. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the rulings made by elected bodies is that this stipulation has been written – without public consent, and often in a climate of profound opacity – within bilateral investment treaties.

A Concrete Case: The UK Coalmine

Last year, activists secured a significant win at the senior court. The judge determined that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, had been wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the permission the previous administration had granted. Today, this victory is under threat by an offshore tribunal accountable to exclusively the corporations filing the suit.

During August, a corporate entity whose ultimate owners are based in the offshore financial centre filed a lawsuit against the UK government. Last week a arbitration panel in the US capital was convened to hear it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had been permitted to go ahead. We have no idea how much this sum represents. What legal team is acting on its behalf challenging the state? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The government enacts a policy, the high court validates it, then a international entity challenges it through an undemocratic offshore tribunal, and a sitting MP represents its behalf.

The Russian Challenge

Concurrently that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case so far, but it seems likely that he will utilise the arbitration process to fight the penalties the UK imposed on him following the Russian aggression. He has already initiated proceedings against Luxembourg on these grounds, claiming $16bn: equivalent to half of government’s yearly budget. Part of the legal team representing him there? Cherie Blair, married to the previous PM.

Trade specialists argue that the EU’s procrastination in using frozen oligarchs' funds as security for its aid for Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Growing Risks

The public was told that these scenarios wouldn’t happen. In 2014, a former prime minister, advocating for the most significant and hazardous of all such treaties, told us: “The UK has signed trade deal after trade deal and we have never seen a problem in the past.” A consultant on this topic accused critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states needed to fear such legal actions. Predictions that “once firms start to realise the authority they now possess, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with general mockery.

That warning has now materialised. This year, energy and extraction companies have initiated a record number of cases against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – official measures to prevent environmental catastrophe. Corporations have to date won $114bn through ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP