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Can you perceive our political system works? Maybe something like this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills pass into law. The law is maintained by the courts. End of story. However, that’s how it once functioned. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, foreign corporations, and the billionaires that control them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings take place behind closed doors. Differing from national judiciaries, these bodies grant no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, including enterprises based in this country. The door is open exclusively to entities operating from foreign soil.

Should an arbitration panel determines that a legislative action might diminish the corporation’s expected profits, it can award damages of hundreds of millions, running into billions.

These awards are based not on real financial harm but money the tribunal officials conclude the company might otherwise have made. The administration might be compelled to rescind the measure. It will be hesitant to passing future laws of a similar nature, due to the risk of being sued.

A Process Growing Exponentially

Historically high figures of disputes are being filed, as corporations take cues from each other, and investment funds fund legal actions in exchange for a cut of the settlements. The consequence? National sovereignty and popular rule are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the decisions enacted by parliaments is that this stipulation has been incorporated – without democratic mandate, and frequently under a climate of extreme secrecy – inside international trade agreements.

A Concrete Case: The Cumbrian Coalmine

Last year, activists won a great victory at the high court. The presiding officer determined that proposals to open the first deep coalmine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine would have had no consequence on our carbon budgets. The Labour government then withdrew the permission the Tories had issued. Currently, this legal outcome could be compromised by an foreign court reporting to no one but the entities bringing the case.

Last August, a company whose beneficial owners are based in the Cayman Islands lodged a claim challenging the UK government. Recently a tribunal in the United States was set up to adjudicate on it.

The claimant is litigating against the UK for the profits it could have earned if the mine had been permitted to go ahead. We have no idea how much this could amount to. What legal team is serving as its counsel challenging the British government? A sitting MP, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the high court upholds it, then a international entity disputes it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Case

Concurrently that the panel on the coalmine case was established, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case to date, but it seems likely that he may employ the tribunal to fight the restrictions the UK levied against him following the Russian aggression. He has previously started suing a small nation on these grounds, demanding sixteen billion dollars: equivalent to half of government’s yearly budget. Included in the lawyers on his side? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in leveraging immobilised state funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states could be blocking the funds Ukraine desperately needs.

False Assurances and Growing Threats

The public was told that these scenarios could not occur. In 2014, a former prime minister, championing the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade deal after trade deal and there has not been a case in the past.” An adviser on this topic accused critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations had to worry about ISDS claims. Predictions that “when companies grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were dismissed with general mockery.

That prediction has come to pass. This year, fossil fuel and resource corporations have initiated a record number of suits against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to prevent climate breakdown. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP