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Can you perceive our political system functions? Maybe something like this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills become law. The law is maintained by the courts. Simple as that. Well, that’s how it once functioned. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, international firms, and the wealthy individuals behind them, have the power to sue nation states for the regulations they pass, at private courts staffed by commercial attorneys. Such disputes take place in secret. In contrast to domestic courts, these panels grant no right of appeal or oversight by judges. The general public are barred from bringing a case to them, just as our government, including companies operating from this country. Access is granted solely for corporations registered abroad.

When a secret court determines that a law or policy might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions, running into billions.

This compensation are based not on actual losses but compensation the panel members determine the company might otherwise have made. The administration might be compelled to rescind the measure. It is deterred from enacting future policies of a similar nature, worried about facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being filed, as corporations take cues from each other, and hedge funds fund legal actions in return for a portion of the awards. The result? National sovereignty and popular rule are turning into too costly.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede domestic law and the choices enacted by elected bodies is that this clause has been inserted – without democratic mandate, and frequently under an atmosphere of extreme secrecy – into international trade agreements.

A Real-World Case: The UK Coalmine

A year ago, activists secured a significant win at the high court. The presiding officer ruled that plans to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had agreed to the bizarre claim that the mine would have no consequence on climate commitments. The new government later cancelled the permission the former government had issued. Now, this success is under threat by an foreign court answering to exclusively the entities bringing the case.

Last August, a company whose ultimate owners reside in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was set up to hear it.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been permitted to commence operations. Citizens have no clear indication how much this could amount to. What legal team is representing it challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the high court upholds it, then a international entity disputes it through an undemocratic offshore tribunal, and a member of our parliament works for its behalf.

An Oligarch's Challenge

Concurrently that the panel on the mining lawsuit was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case so far, but it appears probable that he will utilise the ISDS mechanism to fight the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has already started suing a small nation with similar intent, demanding a colossal sum: an amount representing half nation's annual revenue. Part of the lawyers on his side? Cherie Blair, spouse of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in leveraging immobilised state funds as security for its loan to Ukraine stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Mounting Threats

Politicians promised that these events wouldn’t happen. Previously, a senior politician, championing the largest and riskiest of all these agreements, stated: “We’ve signed trade deal after trade deal and there has never been a issue in the past.” An expert on this issue labelled critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear these lawsuits. Cautionary notes that “when companies begin to understand the influence they’ve been granted, they will shift their focus from the poorer states to the developed economies” were greeted by widespread derision.

That prediction is now a reality. In the current period, oil and gas and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, opposing – as in the case of the UK mine – state efforts to prevent climate breakdown. Corporations have so far won vast sums by using ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP