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Can you reckon our political system works? It could be along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that was how it used to work. Not anymore.

The Emergence of Shadow Arbitration Panels

Nowadays, international firms, along with the oligarchs who own them, can sue governments for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings are held away from public scrutiny. Unlike our courts, these panels provide no right of appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even companies headquartered in this country. The door is open exclusively to entities operating from foreign soil.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, running into billions.

These awards are based not on tangible damages but money the tribunal officials conclude the company could potentially have made. The state might be compelled to abandon its policy. It is hesitant to passing future laws in that area, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as firms take cues from each other, and investment funds finance suits for a share of a portion of the awards. The outcome? Democratic sovereignty and democracy are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the rulings enacted by legislatures is that this clause has been inserted – without public consent, and often in a climate of profound opacity – into international trade agreements.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners won a great victory at the senior court. The justice determined that proposals to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine could have zero effect on national carbon targets. The new government then withdrew the licence the previous administration had approved. Now, this victory could be compromised by an secret arbitration panel accountable to exclusively the entities bringing the case.

In August, a corporate entity whose beneficial owners reside in the Cayman Islands initiated proceedings versus the UK government. Last week a arbitration panel in the US capital was set up to adjudicate on it.

The company is seeking compensation from the UK for the money it could have earned if the mine had been allowed to go ahead. The public has little idea how much this could amount to. Which individual is acting on its behalf against the British government? An elected representative, and former attorney-general in the Conservative government, the noted patriot the MP. The administration makes a decision, the high court supports it, then a foreign company challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

The Russian Challenge

Simultaneously that the court on the coal mine dispute was established, it was revealed from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case so far, but it appears probable that he’ll use the ISDS mechanism to challenge the penalties the UK imposed on him subsequent to the Russian aggression. He has already initiated proceedings against Luxembourg for this reason, seeking sixteen billion dollars: half that state's annual revenue. Among the lawyers on his side? Cherie Blair, married to the ex-UK leader.

Legal experts contend that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over elected governments could be blocking the money Ukraine critically depends on.

Empty Promises and Growing Risks

The public was told that these events could not occur. Years ago, a former prime minister, championing the most significant and hazardous of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and we have never seen a problem in the past.” A consultant on this topic described campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about these lawsuits. Predictions that “as corporations grasp the influence they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with scepticism.

That threat has come to pass. This year, fossil fuel and extraction companies have initiated a record number of cases against nations both wealthy and developing, opposing – similar to the UK mine – government attempts to halt environmental catastrophe. Corporations have so far won vast sums by using ISDS, of which oil majors have secured $84bn. That equates to the combined GDP