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What is your reckon our political system functions? It could be along the lines of this. We elect MPs. They legislate on bills. When a majority is obtained, the bills become law. Legislation is maintained by the courts. Simple as that. However, that’s how it operated in the past. Those days are over.

The Emergence of Offshore Arbitration Panels

Nowadays, overseas companies, or the wealthy individuals behind them, can sue nation states for the laws they pass, at secret arbitration panels staffed by commercial attorneys. The cases are conducted in secret. Unlike our courts, these bodies grant no right of appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, or even enterprises based in this country. The door is open only to corporations based overseas.

If a tribunal finds that a government measure might diminish the corporation’s anticipated profits, it can award damages of vast sums, running into billions.

These awards represent not actual losses but money the tribunal officials conclude the company could potentially have made. The government might be compelled to rescind the measure. It becomes discouraged from introducing similar legislation in that area, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being filed, as companies learn from each other, and private equity fund legal actions in return for a portion of the takings. The outcome? Democratic sovereignty and popular rule are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings taken by parliaments is that this clause has been written – without democratic mandate, and typically amid an atmosphere of total confidentiality – into international trade agreements.

A Concrete Case: The UK Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The judge found that schemes to open the first new deep coal mine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine could have zero effect on national carbon targets. The new government subsequently revoked the consent the former government had issued. Today, this victory faces being overturned by an foreign court accountable to only the companies petitioning it.

Last August, a company whose beneficial owners are based in the tax haven filed a lawsuit against the UK government. Last week a dispute settlement body in the US capital was convened to hear it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to proceed. The public has little idea how much this might be. Which individual is acting on its behalf challenging the UK administration? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government makes a decision, the national judiciary validates it, then a international entity challenges it through an unaccountable private court, and a elected official works for its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coal mine dispute was established, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know nothing of the case at present, but it is highly possible that he’ll use the tribunal to challenge the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, seeking sixteen billion dollars: an amount representing half nation's yearly budget. Among the lawyers representing him there? the wife of a former prime minister, wife of the previous PM.

International law scholars argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over elected governments could be blocking the finance Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that such things could not occur. Years ago, a senior politician, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” A consultant on this matter accused critics of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Warnings that “as corporations start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were met with widespread derision.

That warning is now a reality. Recently, fossil fuel and extraction companies have lodged a historic level of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – government attempts to prevent global warming. Corporations have thus far won $114bn through ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP