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How do you reckon our system of government operates? It could be something like this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills become law. The law is maintained by the courts. That's it. Yet, that used to be how it once functioned. Those days are over.

The Rise of Secret Arbitration Panels

Nowadays, international firms, and the billionaires that control them, are able to litigate against nation states for the policies they pass, at private courts made up of commercial attorneys. Such disputes take place in secret. In contrast to domestic courts, these bodies provide no opportunity to appeal or legal review. You or I cannot take a case to them, just as our government, or even enterprises based in this country. The door is open exclusively to businesses based overseas.

Should an arbitration panel rules that a legislative action could harm the corporation’s anticipated profits, it may order damages of hundreds of millions of pounds, running into billions.

These sums are based not on actual losses but funds the arbitrators determine the company might otherwise have made. The government may have to abandon its policy. It is deterred from enacting future policies of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as corporations learn from each other, and hedge funds fund legal actions in return for a share of the takings. The consequence? National sovereignty and democracy are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump a country's own laws and the decisions enacted by parliaments is that this provision has been written – absent public approval, and frequently under an atmosphere of total confidentiality – inside trade treaties.

A Concrete Case: The Whitehaven Coal Mine

Last year, a conservation group won a great victory at the senior court. The presiding officer found that proposals to dig the first new deep coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine could have no impact on climate commitments. The new government later cancelled the permission the previous administration had issued. Currently, this victory is under threat by an foreign court accountable to no one but the corporations petitioning it.

Last August, a firm whose ultimate owners reside in the offshore financial centre lodged a claim versus the UK government. The previous week a tribunal in Washington DC was set up to consider the case.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had received permission to commence operations. Citizens have no clear indication how much this might be. Who is acting on its behalf challenging the British government? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The state passes a law, the domestic court validates it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a elected official works for its behalf.

The Russian Lawsuit

Concurrently that the panel on the coalmine case was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case to date, but it seems likely that he will utilise the arbitration process to contest the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing another European state on these grounds, demanding a colossal sum: equivalent to half of state's yearly budget. Among the counsel on his side? Cherie Blair, spouse of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This unprecedented, unaccountable authority over elected governments could be blocking the funds Ukraine desperately needs.

Misleading Claims and Growing Costs

We were assured that these scenarios wouldn’t happen. Years ago, a senior politician, advocating for the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade agreement after trade deal and we have never seen a case in the past.” An expert on this matter described activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states needed to fear these lawsuits. Warnings that “once firms start to realise the influence bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by scepticism.

That prediction has now materialised. In the current period, oil and gas and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, contesting – like the example of the Whitehaven project – government attempts to prevent climate breakdown. Firms have thus far won vast sums through ISDS, of which energy giants have obtained $84bn. That represents the combined GDP