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How do you reckon our system of government works? It could be along the lines of this. Citizens choose MPs. They vote on bills. If a majority is obtained, the bills pass into law. Statutes is maintained by the courts. End of story. Yet, that used to be how it operated in the past. No longer.

The Rise of Secret Arbitration Panels

Nowadays, international firms, along with the wealthy individuals who own them, can sue elected administrations for the regulations they pass, at offshore tribunals made up of commercial attorneys. Such disputes are held away from public scrutiny. Differing from national judiciaries, these tribunals grant no right of appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, including enterprises headquartered in this country. The door is open solely for businesses registered abroad.

Should an arbitration panel rules that a legislative action could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions, running into billions.

These awards constitute not real financial harm but money the arbitrators determine the company would perhaps have made. The government may have to drop the legislation. It becomes deterred from enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A Process Growing Exponentially

Record numbers of cases are being initiated, as firms take cues from each other, and private equity bankroll lawsuits in return for a cut of the settlements. The result? Democratic sovereignty and popular rule are now unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can trump national legislation and the rulings enacted by legislatures is that this stipulation has been written – absent public approval, and typically amid conditions of total confidentiality – within bilateral investment treaties.

A Real-World Instance: The Whitehaven Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The justice found that plans to dig the first deep coalmine in the UK for a generation, in Cumbria, were wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have zero effect on climate commitments. The incoming administration later cancelled the licence the Tories had issued. Currently, this legal outcome is under threat by an foreign court answering to exclusively the corporations petitioning it.

In August, a company whose ultimate owners are based in the Cayman Islands filed a lawsuit against the UK government. Last week a tribunal in the US capital was set up to consider the case.

The company is suing the UK for the money it might have made if the mine had received permission to go ahead. We have no clear indication how much this could amount to. Which individual is serving as its counsel challenging the UK administration? An elected representative, and former attorney-general in the previous government, the noted patriot Geoffrey Cox. The administration passes a law, the domestic court validates it, then a international entity contests it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

The Russian Challenge

Concurrently that the tribunal on the mining lawsuit was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case at present, but it is highly possible that he’ll use the tribunal to contest the restrictions the UK imposed on him subsequent to the Russian aggression. He has initiated proceedings against a small nation for this reason, claiming a colossal sum: equivalent to half of nation's yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, spouse of the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized Russian assets as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Risks

The public was told that these scenarios could not occur. Years ago, a former prime minister, promoting the largest and riskiest of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and there has not been a issue in the past.” A consultant on this topic described campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression seemed to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “when companies start to realise the power they’ve been granted, they will shift their focus from the poorer states to the strong ones” were dismissed with widespread derision.

That prediction is now a reality. Recently, energy and extraction companies have lodged a record number of suits against nations both wealthy and developing, challenging – like the example of the Whitehaven project – state efforts to stop climate breakdown. Corporations have to date won $114bn via ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP