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Can you understand our system of government operates? Maybe similar to this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. However, that’s how it once functioned. Not anymore.

The Emergence of Secret Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals who own them, can sue nation states for the policies they pass, at private courts composed of corporate lawyers. Such disputes are held behind closed doors. In contrast to domestic courts, these bodies grant no right of appeal or legal review. You or I are barred from bringing a case to them, nor can our government, or even enterprises headquartered in this country. They are open exclusively to corporations based overseas.

If a tribunal finds that a government measure could harm the corporation’s projected profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

This compensation are based not on real financial harm but funds the panel members decide the company might otherwise have made. The state may have to abandon its policy. It becomes discouraged from introducing similar legislation of a similar nature, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as corporations observe each other, and private equity finance suits for a share of a cut of the settlements. The outcome? Sovereignty and popular rule are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the choices made by elected bodies is that this stipulation has been inserted – without public consent, and typically amid a climate of extreme secrecy – inside bilateral investment treaties.

A Specific Instance: The UK Coalmine

Twelve months ago, activists won a great victory at the senior court. The judge ruled that schemes to dig the first major coal mine in the UK for three decades, in Cumbria, had been unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration later cancelled the licence the previous administration had approved. Currently, this victory could be compromised by an foreign court accountable to only the entities filing the suit.

In August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim against the UK government. Last week a tribunal in Washington DC was established to adjudicate on it.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had been allowed to proceed. The public has no idea how much this could amount to. Who is serving as its counsel in opposition to the state? An elected representative, and former attorney-general in the outgoing administration, that great patriot the MP. The state passes a law, the national judiciary supports it, then a foreign company challenges it through an secretive arbitration panel, and a sitting MP represents its behalf.

An Oligarch's Challenge

Concurrently that the panel on the mining lawsuit was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case to date, but it is highly possible that he’ll use the arbitration process to contest the sanctions the UK enacted against him after the war in Ukraine. He has previously filed a claim against Luxembourg on these grounds, seeking $16bn: an amount representing half government’s yearly budget. Among the counsel on his side? a prominent lawyer, wife of the previous PM.

International law scholars contend that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its financial support package arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over sovereign states might be preventing the finance Ukraine critically depends on.

False Assurances and Escalating Costs

The public was told that these scenarios were not possible. In 2014, a senior politician, advocating for the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and there has not been a case in the past.” A consultant on this topic described campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear such legal actions. Warnings that “once firms grasp the influence they’ve been granted, they will turn their attention from the weak nations to the strong ones” were dismissed with scepticism.

That prediction has now materialised. Recently, fossil fuel and resource corporations have lodged a historic level of suits against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – state efforts to stop global warming. Corporations have so far won $114bn via ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP