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What is your reckon our system of government works? It could be similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. That's it. Well, that used to be how it operated in the past. Not anymore.

The Emergence of Secret Arbitration Panels

Today, international firms, along with the billionaires who own them, are able to litigate against governments for the policies they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held in secret. Differing from national judiciaries, these tribunals allow no right of appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, including businesses based in this country. The door is open only to businesses registered abroad.

If a tribunal determines that a legislative action may compromise the corporation’s expected profits, it has the power to grant damages of vast sums, running into billions.

These sums constitute not tangible damages but compensation the tribunal officials conclude the company might otherwise have made. The government could be forced to abandon its policy. It becomes hesitant to passing future laws along the same lines, worried about incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of cases are being filed, as firms learn from each other, and hedge funds fund legal actions in exchange for a portion of the awards. The consequence? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override national legislation and the decisions enacted by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under a climate of extreme secrecy – into trade treaties.

A Concrete Instance: The Cumbrian Coalmine

Last year, a conservation group won a great victory at the high court. The judge found that proposals to excavate the first new deep coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the Conservative government, which had endorsed the extraordinary assertion that the mine could have zero effect on climate commitments. The new government later cancelled the licence the previous administration had granted. Currently, this success is under threat by an offshore tribunal accountable to only the entities bringing the case.

During August, a corporate entity whose ultimate owners reside in the offshore financial centre initiated proceedings against the UK government. The previous week a tribunal in the US capital was established to hear it.

The claimant is litigating against the UK for the revenue it might have made if the mine had received permission to go ahead. The public has no clear indication how much this sum represents. What legal team is representing it challenging the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a foreign company contests it through an unaccountable private court, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the coal mine dispute was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case so far, but it seems likely that he may employ the ISDS mechanism to fight the restrictions the UK enacted against him after the invasion of Ukraine. He has already initiated proceedings against a small nation on these grounds, seeking sixteen billion dollars: half that state's yearly budget. Among the legal team representing him there? Cherie Blair, married to the previous PM.

Legal experts argue that the EU’s delay in using frozen state funds as security for its financial support package is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations may be obstructing the money Ukraine desperately needs.

False Assurances and Escalating Threats

Politicians promised that these scenarios were not possible. Years ago, a former prime minister, championing the largest and riskiest of all these agreements, told us: “Britain has agreed to investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this issue accused campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries needed to fear such legal actions. Warnings that “when companies start to realise the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by widespread derision.

That threat has now materialised. In the current period, fossil fuel and mining firms have lodged a historic level of cases against nations across the economic spectrum, challenging – as in the case of the UK mine – official measures to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP