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How do you perceive our political system works? Perhaps along the lines of this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills become law. Statutes is upheld by the courts. End of story. Well, that’s how it operated in the past. No longer.

The Rise of Secret Arbitration Panels

In the modern era, international firms, along with the oligarchs behind them, have the power to sue nation states for the regulations they pass, at offshore tribunals staffed by corporate lawyers. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies provide no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even businesses operating from this country. Access is granted exclusively to businesses based overseas.

Should an arbitration panel determines that a government measure could harm the corporation’s anticipated profits, it may order financial penalties of vast sums, even billions.

These awards represent not tangible damages but money the panel members conclude the company could potentially have made. The government may have to abandon its policy. It is hesitant to introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A System Running Rampant

Unprecedented levels of legal actions are being brought, as firms take cues from each other, and private equity bankroll lawsuits for a share of a share of the awards. The consequence? Sovereignty and popular rule are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the rulings enacted by elected bodies is that this stipulation has been incorporated – without public consent, and typically amid an atmosphere of extreme secrecy – into trade treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the High Court. The justice ruled that proposals to open the first major coal mine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have had no impact on our carbon budgets. The Labour government later cancelled the consent the previous administration had issued. Now, this success is under threat by an foreign court accountable to no one but the corporations bringing the case.

During August, a corporate entity whose ultimate owners reside in the Cayman Islands filed a lawsuit challenging the UK government. Recently a arbitration panel in the United States was established to adjudicate on it.

The claimant is litigating against the UK for the revenue it might have made if the mine had received permission to go ahead. Citizens have no idea how much this could amount to. Which individual is serving as its counsel in opposition to the UK administration? An elected representative, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the national judiciary supports it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case at present, but it seems likely that he’ll use the ISDS mechanism to contest the sanctions the UK enacted against him after the war in Ukraine. He has previously initiated proceedings against a small nation with similar intent, demanding sixteen billion dollars: half that nation's annual revenue. Part of the lawyers acting for him in that case? Cherie Blair, married to the ex-UK leader.

International law scholars believe that the EU’s procrastination in utilising seized oligarchs' funds as security for its financial support package stems from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over democratic administrations could be blocking the funds Ukraine critically depends on.

Misleading Claims and Escalating Threats

Politicians promised that these events wouldn’t happen. Previously, a former prime minister, championing the largest and riskiest of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” A consultant on this issue described campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states needed to fear these lawsuits. Warnings that “once firms grasp the influence they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That warning has now materialised. This year, energy and resource corporations have initiated a unprecedented number of cases against nations rich and poor, opposing – like the example of the Cumbrian coalmine – official measures to prevent climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP