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What is your reckon our system of government operates? Perhaps similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. That's it. Well, that used to be how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

Today, international firms, along with the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals made up of commercial attorneys. Such disputes are conducted away from public scrutiny. Unlike our courts, these bodies provide no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, nor can our government, or even companies headquartered in this country. The door is open exclusively to businesses operating from foreign soil.

Should an arbitration panel determines that a government measure may compromise the corporation’s projected profits, it may order financial penalties of hundreds of millions, potentially billions.

These awards constitute not tangible damages but money the panel members decide the company might otherwise have made. The administration might be compelled to drop the legislation. It will be discouraged from enacting future policies of a similar nature, worried about being sued.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being brought, as companies observe each other, and hedge funds finance suits in return for a share of the settlements. The result? Democratic sovereignty and democracy are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the decisions enacted by elected bodies is that this clause has been written – without public consent, and often in an atmosphere of total confidentiality – into international trade agreements.

A Specific Example: The Whitehaven Coalmine

A year ago, environmental campaigners won a great victory at the senior court. The justice determined that plans to excavate the first major coal mine in the UK for three decades, in Cumbria, were wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have had no consequence on national carbon targets. The incoming administration later cancelled the licence the Tories had approved. Now, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the entities filing the suit.

In August, a firm whose beneficial owners are based in the tax haven initiated proceedings versus the UK government. The previous week a dispute settlement body in the US capital was set up to hear it.

The company is suing the UK for the money it could have earned if the mine had been allowed to commence operations. The public has little idea how much this sum represents. What legal team is representing it challenging the British government? An elected representative, and ex-law officer in the Conservative government, that great patriot the MP. The government passes a law, the national judiciary upholds it, then a overseas corporation challenges it through an unaccountable offshore tribunal, and a member of our parliament represents its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case at present, but it appears probable that he’ll use the tribunal to contest the penalties the UK imposed on him after the invasion of Ukraine. He has previously started suing Luxembourg on these grounds, demanding a colossal sum: an amount representing half state's yearly income. Part of the counsel acting for him in that case? Cherie Blair, married to the ex-UK leader.

International law scholars believe that the EU’s procrastination in utilising seized state funds as guarantee for its financial support package stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over democratic administrations could be blocking the finance Ukraine urgently requires.

False Assurances and Growing Costs

The public was told that these scenarios could not occur. In 2014, a government leader, championing the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” A consultant on this topic described campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that exclusively weaker states needed to fear ISDS claims. Warnings that “as corporations grasp the authority bestowed upon them, they will shift their focus from the poorer states to the developed economies” were met with scepticism.

That warning has come to pass. In the current period, fossil fuel and resource corporations have filed a unprecedented number of suits against nations both wealthy and developing, opposing – similar to the Whitehaven project – official measures to stop climate breakdown. Companies have thus far won vast sums by using ISDS, of which fossil fuel companies have secured the majority. That is equivalent to the combined GDP