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What is your understand our political system functions? It could be similar to this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. The law is upheld by the courts. Simple as that. Yet, that’s how it operated in the past. No longer.

The Advent of Secret Arbitration Panels

In the modern era, international firms, along with the wealthy individuals who own them, can sue elected administrations for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. The cases are held behind closed doors. In contrast to domestic courts, these tribunals provide no avenue for appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even companies operating from this country. The door is open only to businesses operating from foreign soil.

When a secret court determines that a law or policy could harm the corporation’s projected profits, it can award compensation of vast sums, even billions.

These awards represent not real financial harm but money the arbitrators determine the company would perhaps have made. The administration may have to rescind the measure. It will be discouraged from passing future laws in that area, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Record numbers of cases are being filed, as corporations learn from each other, and investment funds fund legal actions in exchange for a cut of the awards. The consequence? National sovereignty and democratic governance are turning into too costly.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the rulings made by legislatures is that this provision has been incorporated – without public consent, and typically amid a climate of profound opacity – into international trade agreements.

A Specific Example: The UK Coal Mine

Twelve months ago, activists achieved a major legal triumph at the High Court. The justice determined that plans to excavate the first major coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine could have zero effect on our carbon budgets. The Labour government subsequently revoked the consent the previous administration had issued. Today, this victory could be compromised by an offshore tribunal reporting to no one but the corporations petitioning it.

Last August, a company whose final controllers reside in the Cayman Islands filed a lawsuit challenging the UK government. Recently a arbitration panel in Washington DC was set up to consider the case.

The claimant is suing the UK for the revenue it would have generated if the mine had been allowed to go ahead. We have little idea how much this could amount to. Who is acting on its behalf in opposition to the British government? A member of parliament, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The administration makes a decision, the domestic court supports it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

The Russian Case

Simultaneously that the panel on the mining lawsuit was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it is highly possible that he’ll use the ISDS mechanism to contest the restrictions the UK enacted against him subsequent to the war in Ukraine. He has previously started suing a small nation on these grounds, claiming sixteen billion dollars: an amount representing half state's yearly budget. Included in the legal team on his side? a prominent lawyer, spouse of the ex-UK leader.

International law scholars believe that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its financial support package arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine critically depends on.

Misleading Claims and Growing Threats

The public was told that these scenarios could not occur. Years ago, a senior politician, championing the most significant and hazardous of all these agreements, stated: “The UK has signed trade deal upon trade deal and there has never been a problem in the past.” A consultant on this matter described activists of “exaggeration … the fact is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations should be concerned by ISDS claims. Warnings that “as corporations start to realise the influence they now possess, they will redirect their efforts from the weak nations to the strong ones” were dismissed with scepticism.

That prediction is now a reality. In the current period, fossil fuel and extraction companies have filed a record number of claims against nations both wealthy and developing, challenging – similar to the Whitehaven project – state efforts to halt global warming. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP