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How do you perceive our system of government operates? It could be similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Statutes is upheld by the courts. End of story. Well, that used to be how it operated in the past. Not anymore.

The Advent of Secret Arbitration Panels

In the modern era, overseas companies, along with the billionaires who own them, are able to litigate against nation states for the policies they pass, at secret arbitration panels staffed by corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these tribunals grant no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies operating from this country. They are open only to corporations based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s projected profits, it can award damages of hundreds of millions, running into billions.

This compensation constitute not real financial harm but money the tribunal officials decide the company would perhaps have made. The state could be forced to rescind the measure. It is hesitant to enacting future policies of a similar nature, for fear of facing litigation.

A System Running Rampant

Historically high figures of legal actions are being brought, as firms take cues from each other, and investment funds bankroll lawsuits in return for a cut of the awards. The result? Sovereignty and democratic governance are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the rulings enacted by legislatures is that this provision has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – within international trade agreements.

A Concrete Instance: The Cumbrian Coalmine

A year ago, activists won a great victory at the senior court. The presiding officer found that plans to open the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine would have no consequence on our carbon budgets. The Labour government then withdrew the consent the Tories had approved. Today, this legal outcome is under threat by an secret arbitration panel accountable to only the corporations bringing the case.

Last August, a company whose ultimate owners reside in the tax haven lodged a claim against the UK government. Last week a dispute settlement body in the United States was convened to consider the case.

This firm is suing the UK for the revenue it could have earned if the mine had been permitted to go ahead. The public has no idea how much this could amount to. Which individual is serving as its counsel challenging the state? An elected representative, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court upholds it, then a foreign company contests it through an secretive private court, and a sitting MP works for its behalf.

An Oligarch's Challenge

On the same day that the panel on the mining lawsuit was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it appears probable that he may employ the ISDS mechanism to fight the sanctions the UK levied against him following the Russian aggression. He has initiated proceedings against a small nation for this reason, seeking sixteen billion dollars: an amount representing half nation's yearly budget. Among the lawyers acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

International law scholars argue that the EU’s procrastination in utilising seized state funds as security for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over sovereign states could be blocking the finance Ukraine desperately needs.

Misleading Claims and Mounting Costs

Politicians promised that these events wouldn’t happen. Previously, a former prime minister, promoting the most significant and hazardous of all these agreements, declared: “The UK has signed trade agreement after trade deal and we have never seen a case in the past.” An adviser on this issue described activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations should be concerned by these lawsuits. Warnings that “once firms start to realise the authority they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were met with general mockery.

That threat has come to pass. In the current period, oil and gas and extraction companies have filed a record number of claims against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to halt global warming. Firms have so far won vast sums through ISDS, of which oil majors have secured $84bn. That is equivalent to the combined GDP