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Can you understand our political system functions? Maybe along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. That's it. Well, that was how it used to work. No longer.

The Advent of Secret Tribunals

Nowadays, international firms, and the oligarchs behind them, can sue nation states for the regulations they pass, at offshore tribunals composed of corporate lawyers. Such disputes take place away from public scrutiny. Unlike our courts, these panels grant no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, including businesses based in this country. They are open only to entities based overseas.

Should an arbitration panel determines that a legislative action could harm the corporation’s expected profits, it can award compensation of vast sums, running into billions.

These awards constitute not actual losses but funds the tribunal officials decide the company might otherwise have made. The state could be forced to drop the legislation. It will be deterred from introducing similar legislation along the same lines, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of disputes are being filed, as companies take cues from each other, and hedge funds bankroll lawsuits for a share of a cut of the settlements. The outcome? National sovereignty and democratic governance are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the choices made by parliaments is that this provision has been inserted – without democratic mandate, and often in an atmosphere of profound opacity – inside bilateral investment treaties.

A Concrete Case: The UK Coalmine

Last year, a conservation group won a great victory at the senior court. The justice ruled that plans to excavate the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The Labour government later cancelled the permission the previous administration had granted. Now, this legal outcome faces being overturned by an secret arbitration panel reporting to exclusively the entities bringing the case.

During August, a corporate entity whose final controllers are located in the Cayman Islands initiated proceedings against the UK government. The previous week a dispute settlement body in the United States was convened to consider the case.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been permitted to commence operations. The public has no idea how much this sum represents. What legal team is serving as its counsel challenging the British government? An elected representative, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Lawsuit

Simultaneously that the panel on the coalmine case was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. We know scarce of the case to date, but it seems likely that he’ll use the tribunal to contest the restrictions the UK imposed on him following the war in Ukraine. He has initiated proceedings against another European state on these grounds, claiming a colossal sum: an amount representing half government’s yearly income. Included in the legal team representing him there? a prominent lawyer, wife of the former British prime minister.

Trade specialists believe that the EU’s delay in using frozen state funds as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over democratic administrations could be blocking the money Ukraine desperately needs.

Empty Promises and Growing Threats

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, championing the most significant and hazardous of all such treaties, declared: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” A consultant on this issue accused campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear such legal actions. Predictions that “when companies start to realise the power they now possess, they will shift their focus from the weak nations to the strong ones” were met with general mockery.

That warning has come to pass. In the current period, energy and resource corporations have filed a record number of suits against nations both wealthy and developing, challenging – like the example of the UK mine – government attempts to stop global warming. Corporations have so far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP