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How do you perceive our political system functions? Perhaps similar to this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills become law. The law are enforced by the courts. That's it. Well, that’s how it once functioned. Not anymore.

The Advent of Shadow Arbitration Panels

Nowadays, international firms, or the billionaires behind them, can sue governments for the regulations they pass, at offshore tribunals staffed by commercial attorneys. These proceedings take place in secret. Differing from national judiciaries, these panels allow no right of appeal or legal review. You or I cannot take a case to them, and neither can our government, including enterprises operating from this country. They are open solely for corporations operating from foreign soil.

Should an arbitration panel finds that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These awards represent not actual losses but compensation the tribunal officials conclude the company could potentially have made. The state could be forced to drop the legislation. It becomes deterred from enacting future policies along the same lines, for fear of being sued.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as corporations learn from each other, and private equity fund legal actions in exchange for a portion of the awards. The consequence? Sovereignty and democracy are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the decisions taken by legislatures is that this stipulation has been incorporated – without public consent, and typically amid a climate of extreme secrecy – into bilateral investment treaties.

A Real-World Example: The Cumbrian Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer determined that plans to dig the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the outgoing administration, which had endorsed the questionable argument that the mine could have no impact on climate commitments. The new government later cancelled the permission the previous administration had granted. Today, this legal outcome could be compromised by an secret arbitration panel reporting to only the entities petitioning it.

In August, a company whose final controllers are located in the offshore financial centre lodged a claim versus the UK government. Last week a arbitration panel in the US capital was convened to hear it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to proceed. The public has little idea how much this sum represents. Which individual is representing it in opposition to the state? An elected representative, and previous senior legal advisor in the previous government, that great patriot Sir Geoffrey Cox. The state enacts a policy, the high court upholds it, then a international entity contests it through an unaccountable private court, and a member of our parliament acts on its behalf.

A Sanctions Case

On the same day that the tribunal on the mining lawsuit was convened, we learned from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case at present, but it appears probable that he will utilise the tribunal to contest the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has already started suing another European state for this reason, demanding sixteen billion dollars: half that government’s annual revenue. Among the lawyers acting for him in that case? Cherie Blair, wife of the previous PM.

Trade specialists believe that the EU’s hesitation in leveraging immobilised Russian assets as security for its loan to Ukraine arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over sovereign states may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Costs

We were assured that such things were not possible. Previously, a government leader, advocating for the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” An adviser on this topic accused critics of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations had to worry about such legal actions. Predictions that “when companies begin to understand the power they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were greeted by scepticism.

That threat has come to pass. Recently, oil and gas and mining firms have initiated a record number of claims against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Firms have to date won vast sums by using ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That is equivalent to the combined GDP