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How do you understand our political system operates? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills become law. Legislation are enforced by the courts. End of story. Yet, that used to be how it once functioned. Those days are over.

The Advent of Secret Arbitration Panels

In the modern era, overseas companies, and the billionaires behind them, can sue nation states for the laws they pass, at private courts staffed by commercial attorneys. These proceedings are held in secret. Differing from national judiciaries, these tribunals grant no avenue for appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even businesses based in this country. Access is granted only to businesses operating from foreign soil.

If a tribunal rules that a legislative action could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

This compensation represent not actual losses but compensation the tribunal officials conclude the company would perhaps have made. The state could be forced to abandon its policy. It will be deterred from passing future laws of a similar nature, for fear of facing litigation.

A System Spiralling Out of Control

Historically high figures of disputes are being initiated, as firms observe each other, and investment funds bankroll lawsuits in exchange for a portion of the awards. The consequence? Democratic sovereignty and democracy are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the rulings made by elected bodies is that this provision has been incorporated – absent public approval, and frequently under a climate of extreme secrecy – inside trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Twelve months ago, activists secured a significant win at the High Court. The presiding officer found that proposals to excavate the first major coal mine in the UK for 30 years, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The incoming administration subsequently revoked the licence the previous administration had approved. Currently, this legal outcome faces being overturned by an secret arbitration panel reporting to exclusively the companies petitioning it.

In August, a company whose beneficial owners are located in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in the US capital was set up to hear it.

This firm is suing the UK for the profits it might have made if the mine had been permitted to commence operations. The public has no idea how much this could amount to. Which individual is representing it in opposition to the state? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a foreign company challenges it through an undemocratic private court, and a member of our parliament represents its behalf.

The Russian Lawsuit

On the same day that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case so far, but it seems likely that he may employ the arbitration process to fight the penalties the UK enacted against him following the Russian aggression. He has previously filed a claim against another European state for this reason, demanding $16bn: half that government’s annual revenue. Part of the lawyers representing him there? Cherie Blair, married to the former British prime minister.

Legal experts contend that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine desperately needs.

Misleading Claims and Mounting Costs

The public was told that such things wouldn’t happen. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “The UK has signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this matter described campaigners of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states had to worry about these lawsuits. Predictions that “when companies start to realise the influence they’ve been granted, they will turn their attention from the weak nations to the strong ones” were dismissed with widespread derision.

That threat has come to pass. This year, fossil fuel and resource corporations have filed a historic level of cases against nations across the economic spectrum, contesting – like the example of the UK mine – official measures to prevent environmental catastrophe. Companies have thus far won vast sums through ISDS, of which energy giants have secured the majority. That equates to the combined GDP