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Can you reckon our political system functions? Maybe similar to this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. End of story. Well, that was how it operated in the past. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals who own them, are able to litigate against nation states for the laws they pass, at secret arbitration panels composed of commercial attorneys. The cases are conducted behind closed doors. Unlike our courts, these tribunals provide no right of appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even businesses headquartered in this country. They are open only to entities based overseas.

Should an arbitration panel determines that a law or policy could harm the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

This compensation constitute not actual losses but money the panel members conclude the company could potentially have made. The government could be forced to abandon its policy. It will be discouraged from enacting future policies along the same lines, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being initiated, as corporations observe each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The result? Sovereignty and popular rule are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump a country's own laws and the rulings enacted by legislatures is that this provision has been written – without democratic mandate, and typically amid an atmosphere of profound opacity – within international trade agreements.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The justice found that proposals to dig the first major coal mine in the UK for a generation, in Cumbria, had been illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have zero effect on our carbon budgets. The Labour government then withdrew the licence the Tories had issued. Now, this legal outcome could be compromised by an foreign court reporting to no one but the entities filing the suit.

In August, a company whose final controllers are based in the offshore financial centre lodged a claim against the UK government. Recently a tribunal in the United States was convened to consider the case.

The company is seeking compensation from the UK for the money it would have generated if the mine had received permission to go ahead. Citizens have no clear indication how much this might be. Who is acting on its behalf in opposition to the state? A sitting MP, and ex-law officer in the Conservative government, the noted patriot Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a overseas corporation contests it through an secretive arbitration panel, and a elected official represents its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coal mine dispute was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case to date, but it appears probable that he will utilise the arbitration process to fight the restrictions the UK imposed on him following the war in Ukraine. He has initiated proceedings against another European state on these grounds, demanding $16bn: half that nation's yearly income. Included in the legal team acting for him in that case? Cherie Blair, spouse of the previous PM.

Legal experts believe that the EU’s hesitation in using frozen state funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a investment pact. This unprecedented, unaccountable authority over sovereign states could be blocking the money Ukraine urgently requires.

Misleading Claims and Escalating Threats

The public was told that these scenarios could not occur. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this matter accused activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear ISDS claims. Predictions that “once firms begin to understand the influence bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by scepticism.

That threat is now a reality. This year, oil and gas and extraction companies have initiated a unprecedented number of suits against nations rich and poor, opposing – like the example of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Corporations have to date won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP