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What is your perceive our system of government operates? Perhaps similar to this. We elect MPs. They vote on bills. If a majority is obtained, the bills pass into law. Legislation is maintained by the courts. Simple as that. Yet, that used to be how it once functioned. Not anymore.

The Emergence of Secret Arbitration Panels

In the modern era, overseas companies, or the oligarchs who own them, have the power to sue elected administrations for the policies they pass, at offshore tribunals composed of business advocates. Such disputes are held away from public scrutiny. In contrast to domestic courts, these tribunals provide no avenue for appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even businesses headquartered in this country. The door is open exclusively to entities operating from foreign soil.

Should an arbitration panel finds that a law or policy might diminish the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

This compensation are based not on tangible damages but funds the tribunal officials determine the company could potentially have made. The administration may have to abandon its policy. It becomes discouraged from enacting future policies of a similar nature, worried about being sued.

A Mechanism Running Rampant

Historically high figures of disputes are being filed, as corporations observe each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The result? National sovereignty and democracy are now too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the decisions made by parliaments is that this clause has been inserted – absent public approval, and often in a climate of total confidentiality – within trade treaties.

A Specific Case: The Cumbrian Coalmine

A year ago, activists achieved a major legal triumph at the High Court. The justice ruled that plans to excavate the first new deep coal mine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have had no consequence on climate commitments. The new government then withdrew the consent the Tories had granted. Currently, this victory faces being overturned by an foreign court accountable to exclusively the entities bringing the case.

In August, a firm whose beneficial owners reside in the offshore financial centre filed a lawsuit against the UK government. Recently a arbitration panel in the United States was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had received permission to commence operations. We have no clear indication how much this sum represents. Which individual is representing it in opposition to the state? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a international entity contests it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

A Sanctions Challenge

On the same day that the panel on the mining lawsuit was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case to date, but it is highly possible that he’ll use the arbitration process to fight the penalties the UK imposed on him following the invasion of Ukraine. He has started suing Luxembourg for this reason, claiming a colossal sum: half that state's yearly income. Among the counsel acting for him in that case? a prominent lawyer, wife of the former British prime minister.

Trade specialists argue that the EU’s delay in using frozen Russian assets as security for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that these events wouldn’t happen. Previously, a former prime minister, championing the largest and riskiest of all such treaties, told us: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this issue accused campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “once firms grasp the power they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were greeted by scepticism.

That warning has come to pass. In the current period, energy and resource corporations have filed a record number of claims against nations rich and poor, challenging – like the example of the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP