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How do you understand our political system works? Maybe along the lines of this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills become law. The law is upheld by the courts. That's it. Well, that used to be how it operated in the past. No longer.

The Rise of Secret Tribunals

Today, international firms, or the oligarchs who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place in secret. Unlike our courts, these panels allow no right of appeal or legal review. You or I are barred from bringing a case to them, just as our government, including enterprises based in this country. The door is open exclusively to corporations registered abroad.

If a tribunal rules that a legislative action might diminish the corporation’s projected profits, it may order compensation of hundreds of millions of pounds, even billions.

This compensation are based not on real financial harm but funds the panel members conclude the company might otherwise have made. The state may have to abandon its policy. It is hesitant to introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A System Growing Exponentially

Historically high figures of cases are being filed, as firms take cues from each other, and hedge funds fund legal actions in exchange for a portion of the takings. The result? Democratic sovereignty and democracy are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede domestic law and the decisions enacted by parliaments is that this clause has been written – without democratic mandate, and frequently under a climate of profound opacity – inside international trade agreements.

A Real-World Example: The Whitehaven Coal Mine

A year ago, activists won a great victory at the high court. The presiding officer found that proposals to open the first major coal mine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine would have zero effect on climate commitments. The incoming administration later cancelled the permission the Tories had approved. Now, this success could be compromised by an foreign court answering to no one but the corporations petitioning it.

During August, a corporate entity whose final controllers are located in the Cayman Islands filed a lawsuit versus the UK government. Recently a dispute settlement body in the United States was established to consider the case.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been allowed to commence operations. We have no idea how much this could amount to. Who is representing it challenging the state? An elected representative, and previous senior legal advisor in the previous government, the noted patriot the MP. The administration passes a law, the national judiciary upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the coal mine dispute was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case to date, but it is highly possible that he will utilise the arbitration process to fight the restrictions the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against Luxembourg with similar intent, claiming sixteen billion dollars: half that government’s yearly income. Included in the legal team representing him there? a prominent lawyer, wife of the previous PM.

International law scholars argue that the EU’s delay in using frozen Russian assets as guarantee for its aid for Ukraine is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This remarkable, undemocratic power over democratic administrations might be preventing the finance Ukraine desperately needs.

Misleading Claims and Growing Costs

The public was told that these scenarios were not possible. Previously, a senior politician, championing the biggest and most dangerous of all investment pacts, declared: “We’ve signed trade deal after trade deal and there has not been a case in the past.” An adviser on this matter accused campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies grasp the power they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction has now materialised. Recently, fossil fuel and mining firms have initiated a unprecedented number of suits against nations across the economic spectrum, challenging – similar to the UK mine – government attempts to stop climate breakdown. Corporations have so far won vast sums via ISDS, of which energy giants have been awarded eighty-four billion dollars. That equates to the combined GDP