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How do you reckon our political system operates? Maybe similar to this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills become law. The law are enforced by the courts. That's it. Well, that was how it operated in the past. Not anymore.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, and the billionaires behind them, can sue elected administrations for the regulations they pass, at private courts composed of corporate lawyers. These proceedings are held behind closed doors. Differing from national judiciaries, these bodies provide no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. Access is granted exclusively to corporations based overseas.

Should an arbitration panel rules that a law or policy may compromise the corporation’s projected profits, it has the power to grant damages of hundreds of millions, running into billions.

This compensation are based not on tangible damages but compensation the tribunal officials decide the company would perhaps have made. The state could be forced to rescind the measure. It becomes discouraged from introducing similar legislation in that area, for fear of being sued.

A Process Growing Exponentially

Historically high figures of cases are being filed, as corporations take cues from each other, and hedge funds finance suits in exchange for a cut of the takings. The result? Sovereignty and popular rule are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the choices taken by parliaments is that this clause has been inserted – absent public approval, and often in a climate of extreme secrecy – inside bilateral investment treaties.

A Concrete Example: The UK Coal Mine

Last year, activists secured a significant win at the senior court. The judge determined that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, had been wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had no consequence on climate commitments. The new government then withdrew the permission the Tories had approved. Now, this victory is under threat by an offshore tribunal accountable to only the corporations bringing the case.

In August, a company whose final controllers are based in the offshore financial centre lodged a claim versus the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

The company is litigating against the UK for the revenue it would have generated if the mine had received permission to commence operations. The public has no idea how much this sum represents. Which individual is serving as its counsel against the state? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot the MP. The administration makes a decision, the national judiciary upholds it, then a overseas corporation contests it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Challenge

On the same day that the tribunal on the coal mine dispute was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case so far, but it appears probable that he will utilise the arbitration process to contest the penalties the UK imposed on him after the invasion of Ukraine. He has already initiated proceedings against another European state for this reason, seeking a colossal sum: an amount representing half government’s annual revenue. Included in the legal team on his side? a prominent lawyer, wife of the ex-UK leader.

International law scholars believe that the EU’s procrastination in using frozen oligarchs' funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states might be preventing the funds Ukraine urgently requires.

Misleading Claims and Mounting Costs

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, advocating for the most significant and hazardous of all such treaties, declared: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” An adviser on this matter labelled activists of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “when companies grasp the influence bestowed upon them, they will shift their focus from the weak nations to the developed economies” were met with scepticism.

That threat is now a reality. This year, energy and mining firms have lodged a historic level of claims against nations across the economic spectrum, opposing – as in the case of the UK mine – official measures to prevent environmental catastrophe. Firms have thus far won vast sums through ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP