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Can you reckon our system of government functions? Perhaps something like this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. That's it. However, that’s how it used to work. Not anymore.

The Advent of Shadow Arbitration Panels

In the modern era, international firms, and the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at private courts composed of commercial attorneys. The cases take place in secret. Unlike our courts, these panels grant no avenue for appeal or legal review. The general public are barred from bringing a case to them, nor can our government, or even companies based in this country. They are open exclusively to businesses based overseas.

When a secret court rules that a law or policy may compromise the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, even billions.

These awards are based not on actual losses but money the tribunal officials determine the company would perhaps have made. The government might be compelled to rescind the measure. It becomes hesitant to enacting future policies along the same lines, for fear of being sued.

A Process Running Rampant

Unprecedented levels of legal actions are being brought, as companies observe each other, and investment funds fund legal actions for a share of a share of the takings. The result? Sovereignty and democratic governance are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the rulings taken by parliaments is that this clause has been incorporated – without public consent, and often in a climate of extreme secrecy – into bilateral investment treaties.

A Specific Example: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the high court. The judge determined that plans to excavate the first new deep coal mine in the UK for three decades, in northwest England, had been unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine could have no impact on national carbon targets. The incoming administration then withdrew the permission the Tories had approved. Now, this success could be compromised by an foreign court answering to no one but the companies filing the suit.

In August, a company whose ultimate owners are based in the offshore financial centre initiated proceedings against the UK government. Recently a tribunal in Washington DC was convened to hear it.

The claimant is suing the UK for the money it might have made if the mine had received permission to commence operations. We have no clear indication how much this could amount to. What legal team is acting on its behalf challenging the state? A sitting MP, and former attorney-general in the outgoing administration, the noted patriot Sir Geoffrey Cox. The state passes a law, the national judiciary supports it, then a foreign company challenges it through an undemocratic arbitration panel, and a elected official works for its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the coal mine dispute was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it is highly possible that he’ll use the ISDS mechanism to fight the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has already started suing Luxembourg on these grounds, claiming a colossal sum: an amount representing half government’s yearly budget. Part of the lawyers on his side? a prominent lawyer, wife of the previous PM.

Trade specialists argue that the EU’s delay in using frozen oligarchs' funds as security for its financial support package arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states could be blocking the money Ukraine critically depends on.

Empty Promises and Escalating Risks

Politicians promised that these events wouldn’t happen. In 2014, a government leader, championing the biggest and most dangerous of all such treaties, declared: “The UK has signed investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this topic labelled campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “once firms begin to understand the power bestowed upon them, they will turn their attention from the weak nations to the developed economies” were dismissed with widespread derision.

That prediction has now materialised. This year, fossil fuel and extraction companies have lodged a historic level of suits against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – state efforts to prevent climate breakdown. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That is equivalent to the combined GDP