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How do you reckon our political system functions? It could be something like this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. End of story. Yet, that used to be how it used to work. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, foreign corporations, or the oligarchs who own them, can sue elected administrations for the policies they pass, at secret arbitration panels made up of corporate lawyers. The cases are held behind closed doors. Unlike our courts, these panels grant no avenue for appeal or judicial review. The general public cannot take a case to them, nor can our government, or even businesses based in this country. The door is open solely for corporations operating from foreign soil.

When a secret court rules that a government measure might diminish the corporation’s expected profits, it can award damages of hundreds of millions of pounds, even billions.

These sums are based not on actual losses but money the arbitrators conclude the company would perhaps have made. The administration may have to rescind the measure. It is hesitant to introducing similar legislation of a similar nature, for fear of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of cases are being initiated, as corporations take cues from each other, and private equity fund legal actions in exchange for a cut of the takings. The outcome? National sovereignty and democracy are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the choices enacted by elected bodies is that this provision has been written – absent public approval, and frequently under conditions of extreme secrecy – within international trade agreements.

A Real-World Instance: The Whitehaven Coal Mine

Twelve months ago, a conservation group won a great victory at the high court. The judge found that schemes to dig the first major coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no consequence on climate commitments. The incoming administration subsequently revoked the licence the Tories had granted. Now, this legal outcome could be compromised by an foreign court answering to exclusively the entities bringing the case.

During August, a company whose ultimate owners are located in the offshore financial centre lodged a claim versus the UK government. Last week a tribunal in the United States was set up to hear it.

This firm is litigating against the UK for the profits it would have generated if the mine had been permitted to proceed. We have no clear indication how much this sum represents. What legal team is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot the MP. The administration passes a law, the high court upholds it, then a international entity challenges it through an secretive private court, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

On the same day that the court on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he may employ the arbitration process to contest the sanctions the UK enacted against him following the invasion of Ukraine. He has started suing Luxembourg with similar intent, seeking a colossal sum: half that state's yearly income. Part of the lawyers acting for him in that case? a prominent lawyer, married to the ex-UK leader.

Legal experts believe that the EU’s procrastination in utilising seized state funds as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over sovereign states might be preventing the finance Ukraine critically depends on.

Misleading Claims and Growing Costs

We were assured that such things could not occur. Years ago, a former prime minister, promoting the most significant and hazardous of all these agreements, declared: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” An adviser on this matter labelled critics of “alarmism … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear ISDS claims. Predictions that “when companies start to realise the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That prediction has come to pass. Recently, energy and mining firms have lodged a record number of cases against nations rich and poor, challenging – similar to the Cumbrian coalmine – official measures to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP