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What is your perceive our system of government works? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Yet, that’s how it operated in the past. Those days are over.

The Advent of Secret Arbitration Panels

Nowadays, international firms, or the billionaires behind them, can sue governments for the laws they pass, at private courts staffed by commercial attorneys. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these tribunals provide no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted only to entities operating from foreign soil.

When a secret court finds that a law or policy might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These awards are based not on actual losses but funds the tribunal officials decide the company would perhaps have made. The administration may have to rescind the measure. It will be hesitant to introducing similar legislation along the same lines, worried about being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being filed, as firms learn from each other, and hedge funds fund legal actions in return for a cut of the takings. The consequence? National sovereignty and democratic governance are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the choices made by legislatures is that this stipulation has been inserted – without democratic mandate, and frequently under conditions of profound opacity – within trade treaties.

A Concrete Instance: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners won a great victory at the high court. The presiding officer found that plans to excavate the first deep coalmine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have had no impact on climate commitments. The Labour government then withdrew the licence the Tories had issued. Now, this legal outcome is under threat by an secret arbitration panel reporting to no one but the entities filing the suit.

During August, a firm whose final controllers reside in the Cayman Islands lodged a claim challenging the UK government. The previous week a arbitration panel in the US capital was convened to adjudicate on it.

The company is seeking compensation from the UK for the profits it might have made if the mine had received permission to proceed. We have little idea how much this could amount to. What legal team is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The state passes a law, the national judiciary supports it, then a foreign company contests it through an unaccountable offshore tribunal, and a elected official represents its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the coalmine case was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case to date, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK imposed on him after the Russian aggression. He has filed a claim against Luxembourg for this reason, claiming sixteen billion dollars: equivalent to half of state's yearly budget. Among the lawyers acting for him in that case? Cherie Blair, wife of the previous PM.

International law scholars argue that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over sovereign states might be preventing the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

Politicians promised that such things could not occur. Previously, a senior politician, advocating for the largest and riskiest of all investment pacts, declared: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” A consultant on this topic labelled critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies start to realise the authority bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by general mockery.

That warning is now a reality. In the current period, oil and gas and resource corporations have filed a unprecedented number of claims against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – state efforts to stop environmental catastrophe. Corporations have so far won vast sums through ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP