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Can you perceive our political system operates? Perhaps something like this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills become law. Legislation is maintained by the courts. That's it. Well, that used to be how it operated in the past. Those days are over.

The Rise of Secret Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals behind them, are able to litigate against governments for the regulations they pass, at private courts made up of corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these panels allow no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, or even companies operating from this country. Access is granted solely for businesses based overseas.

When a secret court rules that a legislative action might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These sums constitute not actual losses but compensation the panel members decide the company could potentially have made. The government could be forced to drop the legislation. It becomes discouraged from passing future laws of a similar nature, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being filed, as firms learn from each other, and hedge funds finance suits for a share of a share of the settlements. The consequence? Sovereignty and democracy are now too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the choices enacted by legislatures is that this provision has been inserted – without democratic mandate, and often in an atmosphere of total confidentiality – inside bilateral investment treaties.

A Concrete Example: The Cumbrian Coal Mine

Last year, activists secured a significant win at the senior court. The justice ruled that schemes to excavate the first major coal mine in the UK for a generation, in northwest England, were wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine could have no impact on our carbon budgets. The new government subsequently revoked the consent the former government had granted. Now, this success could be compromised by an offshore tribunal reporting to exclusively the companies filing the suit.

Last August, a corporate entity whose final controllers reside in the Cayman Islands filed a lawsuit challenging the UK government. Recently a arbitration panel in the US capital was convened to consider the case.

The claimant is suing the UK for the profits it could have earned if the mine had received permission to proceed. We have little idea how much this could amount to. Which individual is acting on its behalf challenging the UK administration? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the domestic court upholds it, then a foreign company contests it through an secretive arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

Simultaneously that the panel on the mining lawsuit was convened, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case at present, but it appears probable that he’ll use the arbitration process to fight the restrictions the UK imposed on him following the Russian aggression. He has filed a claim against a small nation on these grounds, demanding $16bn: equivalent to half of nation's annual revenue. Part of the lawyers representing him there? Cherie Blair, wife of the previous PM.

International law scholars contend that the EU’s delay in using frozen state funds as collateral for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over elected governments may be obstructing the funds Ukraine critically depends on.

Empty Promises and Growing Risks

The public was told that such things could not occur. In 2014, a former prime minister, championing the most significant and hazardous of all investment pacts, stated: “The UK has signed trade agreement after trade deal and there has not been a problem in the past.” An expert on this matter accused campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about ISDS claims. Cautionary notes that “when companies grasp the authority they now possess, they will redirect their efforts from the weak nations to the strong ones” were met with widespread derision.

That threat is now a reality. Recently, oil and gas and resource corporations have lodged a historic level of cases against nations rich and poor, contesting – similar to the UK mine – official measures to stop climate breakdown. Firms have thus far won $114bn by using ISDS, of which energy giants have secured $84bn. That equates to the combined GDP