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How do you perceive our system of government operates? Perhaps along the lines of this. We elect MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Statutes is upheld by the courts. End of story. However, that’s how it operated in the past. Not anymore.

The Emergence of Shadow Arbitration Panels

Today, overseas companies, along with the billionaires behind them, can sue governments for the laws they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings take place behind closed doors. Unlike our courts, these bodies allow no avenue for appeal or legal review. You or I cannot take a case to them, just as our government, or even companies headquartered in this country. They are open only to businesses based overseas.

If a tribunal rules that a government measure could harm the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, running into billions.

These awards represent not real financial harm but funds the arbitrators conclude the company might otherwise have made. The government may have to abandon its policy. It will be deterred from introducing similar legislation of a similar nature, for fear of being sued.

A Mechanism Growing Exponentially

Record numbers of cases are being filed, as corporations learn from each other, and investment funds fund legal actions for a share of a share of the awards. The result? Sovereignty and popular rule are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump domestic law and the rulings enacted by parliaments is that this provision has been written – absent public approval, and frequently under a climate of total confidentiality – within trade treaties.

A Concrete Example: The Whitehaven Coal Mine

Last year, activists won a great victory at the senior court. The judge determined that plans to excavate the first major coal mine in the UK for a generation, in Cumbria, were wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have no impact on our carbon budgets. The incoming administration then withdrew the licence the former government had granted. Today, this victory could be compromised by an foreign court accountable to exclusively the corporations filing the suit.

In August, a company whose beneficial owners are based in the tax haven initiated proceedings against the UK government. The previous week a tribunal in the US capital was established to adjudicate on it.

This firm is suing the UK for the revenue it could have earned if the mine had been allowed to proceed. The public has no clear indication how much this might be. What legal team is representing it in opposition to the state? A sitting MP, and previous senior legal advisor in the previous government, the noted patriot the MP. The government passes a law, the national judiciary validates it, then a foreign company disputes it through an unaccountable private court, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the court on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. The public knows little of the case to date, but it seems likely that he will utilise the arbitration process to contest the penalties the UK levied against him after the invasion of Ukraine. He has started suing Luxembourg on these grounds, claiming $16bn: half that nation's yearly budget. Among the lawyers representing him there? Cherie Blair, wife of the former British prime minister.

International law scholars believe that the EU’s delay in utilising seized oligarchs' funds as collateral for its aid for Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over elected governments may be obstructing the money Ukraine critically depends on.

Empty Promises and Escalating Risks

We were assured that these events wouldn’t happen. Years ago, a government leader, promoting the most significant and hazardous of all these agreements, declared: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” An adviser on this matter described campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “as corporations begin to understand the power bestowed upon them, they will turn their attention from the poorer states to the developed economies” were dismissed with scepticism.

That threat is now a reality. In the current period, oil and gas and mining firms have initiated a historic level of cases against nations rich and poor, opposing – as in the case of the UK mine – government attempts to halt environmental catastrophe. Companies have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP