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How do you understand our political system functions? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is secured, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that used to be how it once functioned. No longer.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, and the wealthy individuals that control them, have the power to sue nation states for the laws they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these panels provide no right of appeal or judicial review. You or I are unable to file a case to them, just as our government, or even businesses headquartered in this country. Access is granted exclusively to businesses registered abroad.

If a tribunal determines that a law or policy might diminish the corporation’s projected profits, it may order financial penalties of vast sums, running into billions.

These awards are based not on tangible damages but money the panel members conclude the company would perhaps have made. The state might be compelled to drop the legislation. It will be hesitant to passing future laws along the same lines, worried about facing litigation.

A System Spiralling Out of Control

Historically high figures of cases are being filed, as companies learn from each other, and hedge funds fund legal actions in return for a portion of the settlements. The consequence? Sovereignty and popular rule are now unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the rulings enacted by elected bodies is that this provision has been written – without democratic mandate, and typically amid conditions of profound opacity – into bilateral investment treaties.

A Real-World Instance: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the senior court. The judge found that plans to excavate the first major coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no impact on national carbon targets. The incoming administration subsequently revoked the consent the previous administration had issued. Now, this legal outcome is under threat by an secret arbitration panel answering to exclusively the entities bringing the case.

Last August, a company whose final controllers are located in the Cayman Islands initiated proceedings against the UK government. Recently a dispute settlement body in the United States was convened to consider the case.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to commence operations. We have no clear indication how much this might be. Which individual is acting on its behalf against the state? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The government passes a law, the high court upholds it, then a international entity challenges it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Case

On the same day that the court on the coalmine case was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case to date, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK imposed on him following the invasion of Ukraine. He has already filed a claim against Luxembourg for this reason, claiming sixteen billion dollars: an amount representing half nation's yearly income. Among the counsel on his side? a prominent lawyer, married to the ex-UK leader.

Legal experts contend that the EU’s procrastination in leveraging immobilised state funds as collateral for its financial support package arises from concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, secretive influence over democratic administrations may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Costs

The public was told that these scenarios wouldn’t happen. In 2014, a former prime minister, promoting the biggest and most dangerous of all these agreements, told us: “We’ve signed trade agreement upon trade deal and there has never been a case in the past.” An adviser on this topic accused critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries should be concerned by ISDS claims. Predictions that “as corporations start to realise the authority they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were met with general mockery.

That warning has come to pass. This year, fossil fuel and resource corporations have initiated a unprecedented number of suits against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to stop climate breakdown. Corporations have to date won $114bn by using ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP