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How do you perceive our system of government operates? Perhaps similar to this. We elect MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. Yet, that’s how it used to work. Those days are over.

The Advent of Shadow Arbitration Panels

In the modern era, international firms, and the oligarchs who own them, have the power to sue nation states for the regulations they pass, at offshore tribunals composed of business advocates. The cases take place in secret. Unlike our courts, these tribunals provide no opportunity to appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even companies based in this country. They are open exclusively to businesses registered abroad.

If a tribunal rules that a government measure may compromise the corporation’s projected profits, it can award financial penalties of hundreds of millions, even billions.

These sums constitute not tangible damages but compensation the panel members decide the company could potentially have made. The state could be forced to drop the legislation. It will be deterred from passing future laws of a similar nature, for fear of facing litigation.

A System Growing Exponentially

Historically high figures of cases are being filed, as corporations observe each other, and hedge funds bankroll lawsuits in return for a portion of the settlements. The result? National sovereignty and democratic governance are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the choices taken by parliaments is that this stipulation has been written – without democratic mandate, and typically amid conditions of extreme secrecy – within international trade agreements.

A Real-World Instance: The UK Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer ruled that plans to dig the first major coal mine in the UK for three decades, in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine could have no impact on our carbon budgets. The Labour government subsequently revoked the consent the previous administration had issued. Now, this legal outcome is under threat by an secret arbitration panel answering to no one but the entities bringing the case.

During August, a firm whose ultimate owners are based in the tax haven filed a lawsuit challenging the UK government. Recently a dispute settlement body in the United States was established to consider the case.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to proceed. Citizens have no clear indication how much this sum represents. What legal team is representing it challenging the state? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the national judiciary supports it, then a foreign company challenges it through an undemocratic offshore tribunal, and a elected official works for its behalf.

An Oligarch's Case

Concurrently that the tribunal on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he may employ the tribunal to fight the penalties the UK imposed on him after the Russian aggression. He has previously started suing another European state on these grounds, seeking a colossal sum: half that nation's yearly budget. Among the legal team on his side? the wife of a former prime minister, spouse of the previous PM.

Legal experts believe that the EU’s delay in utilising seized oligarchs' funds as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Mounting Costs

We were assured that these scenarios could not occur. Previously, a former prime minister, championing the biggest and most dangerous of all such treaties, stated: “We’ve signed trade agreement upon trade deal and we have never seen a case in the past.” An expert on this topic labelled activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries needed to fear ISDS claims. Warnings that “when companies grasp the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That threat is now a reality. This year, fossil fuel and extraction companies have initiated a historic level of suits against nations both wealthy and developing, opposing – like the example of the Whitehaven project – official measures to prevent global warming. Firms have so far won $114bn through ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP