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Can you perceive our political system works? It could be similar to this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills become law. Legislation is maintained by the courts. That's it. However, that used to be how it used to work. Not anymore.

The Rise of Secret Arbitration Panels

Today, international firms, or the billionaires that control them, can sue governments for the policies they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies provide no opportunity to appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even enterprises based in this country. The door is open solely for entities registered abroad.

When a secret court determines that a government measure might diminish the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, even billions.

These sums represent not tangible damages but money the arbitrators conclude the company could potentially have made. The administration may have to rescind the measure. It will be discouraged from enacting future policies of a similar nature, worried about being sued.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being filed, as companies learn from each other, and investment funds bankroll lawsuits for a share of a portion of the takings. The result? National sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings enacted by parliaments is that this clause has been inserted – absent public approval, and often in a climate of total confidentiality – inside bilateral investment treaties.

A Specific Example: The Cumbrian Coalmine

A year ago, activists won a great victory at the senior court. The judge ruled that plans to excavate the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have no impact on national carbon targets. The incoming administration subsequently revoked the permission the previous administration had granted. Now, this victory is under threat by an secret arbitration panel answering to exclusively the companies petitioning it.

In August, a firm whose final controllers are located in the offshore financial centre filed a lawsuit versus the UK government. Recently a arbitration panel in Washington DC was convened to hear it.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been permitted to go ahead. We have little idea how much this sum represents. Which individual is serving as its counsel challenging the UK administration? A sitting MP, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court validates it, then a foreign company disputes it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

The Russian Case

Simultaneously that the tribunal on the coal mine dispute was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case so far, but it is highly possible that he may employ the arbitration process to challenge the restrictions the UK imposed on him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, seeking a colossal sum: half that government’s yearly budget. Included in the legal team on his side? the wife of a former prime minister, wife of the former British prime minister.

Legal experts contend that the EU’s delay in using frozen Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments could be blocking the finance Ukraine urgently requires.

False Assurances and Escalating Costs

The public was told that such things wouldn’t happen. In 2014, a senior politician, promoting the biggest and most dangerous of all these agreements, stated: “We’ve signed trade deal after trade deal and there has not been a issue in the past.” An adviser on this issue labelled critics of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “as corporations start to realise the influence they now possess, they will turn their attention from the poorer states to the developed economies” were greeted by widespread derision.

That threat has come to pass. This year, energy and resource corporations have lodged a unprecedented number of suits against nations both wealthy and developing, challenging – like the example of the Whitehaven project – state efforts to prevent environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP