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How do you reckon our system of government functions? Perhaps similar to this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. The law is upheld by the courts. Simple as that. However, that used to be how it operated in the past. Not anymore.

The Rise of Shadow Arbitration Panels

Today, international firms, and the wealthy individuals behind them, have the power to sue elected administrations for the laws they pass, at offshore tribunals composed of business advocates. The cases take place in secret. In contrast to domestic courts, these bodies provide no avenue for appeal or legal review. You or I are unable to file a case to them, nor can our government, including businesses operating from this country. The door is open exclusively to businesses based overseas.

When a secret court determines that a legislative action could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions of pounds, potentially billions.

These awards constitute not tangible damages but funds the panel members conclude the company would perhaps have made. The government could be forced to drop the legislation. It becomes hesitant to introducing similar legislation of a similar nature, worried about facing litigation.

A System Growing Exponentially

Historically high figures of legal actions are being initiated, as firms learn from each other, and hedge funds fund legal actions for a share of a share of the awards. The result? National sovereignty and popular rule are turning into unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the rulings made by legislatures is that this provision has been incorporated – absent public approval, and frequently under a climate of profound opacity – into trade treaties.

A Specific Example: The UK Coalmine

A year ago, environmental campaigners won a great victory at the high court. The judge found that schemes to dig the first new deep coal mine in the UK for 30 years, in northwest England, were illegally sanctioned by the previous government, which had agreed to the extraordinary assertion that the mine could have no consequence on climate commitments. The new government then withdrew the consent the Tories had approved. Now, this legal outcome is under threat by an offshore tribunal accountable to only the companies filing the suit.

In August, a corporate entity whose beneficial owners are located in the tax haven filed a lawsuit against the UK government. Last week a dispute settlement body in Washington DC was convened to hear it.

This firm is suing the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have little idea how much this could amount to. What legal team is representing it in opposition to the British government? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The state enacts a policy, the high court validates it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a elected official works for its behalf.

The Russian Challenge

Simultaneously that the tribunal on the mining lawsuit was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case so far, but it is highly possible that he will utilise the ISDS mechanism to contest the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has previously initiated proceedings against a small nation on these grounds, demanding $16bn: an amount representing half government’s yearly income. Included in the lawyers representing him there? Cherie Blair, wife of the previous PM.

Trade specialists contend that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over democratic administrations could be blocking the finance Ukraine urgently requires.

Misleading Claims and Mounting Costs

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, advocating for the biggest and most dangerous of all these agreements, stated: “We’ve signed trade deal after trade deal and we have never seen a case in the past.” An expert on this issue accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states needed to fear such legal actions. Predictions that “once firms grasp the authority bestowed upon them, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That prediction has now materialised. This year, fossil fuel and resource corporations have lodged a unprecedented number of suits against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to stop environmental catastrophe. Corporations have so far won $114bn through ISDS, of which fossil fuel companies have been awarded $84bn. That equates to the combined GDP