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How do you perceive our political system functions? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills become law. Legislation is maintained by the courts. End of story. Yet, that’s how it once functioned. Not anymore.

The Emergence of Secret Tribunals

In the modern era, overseas companies, or the wealthy individuals behind them, can sue governments for the policies they pass, at secret arbitration panels made up of business advocates. The cases are conducted in secret. In contrast to domestic courts, these tribunals allow no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, including companies headquartered in this country. They are open only to entities operating from foreign soil.

If a tribunal rules that a government measure might diminish the corporation’s expected profits, it has the power to grant financial penalties of vast sums, even billions.

This compensation constitute not real financial harm but money the panel members conclude the company might otherwise have made. The state may have to drop the legislation. It becomes discouraged from passing future laws in that area, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of cases are being filed, as companies take cues from each other, and private equity fund legal actions in exchange for a cut of the awards. The result? Sovereignty and popular rule are now unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the rulings enacted by legislatures is that this provision has been inserted – without democratic mandate, and typically amid conditions of total confidentiality – inside trade treaties.

A Real-World Case: The Whitehaven Coalmine

Last year, activists secured a significant win at the High Court. The judge determined that schemes to excavate the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on our carbon budgets. The incoming administration later cancelled the licence the former government had approved. Now, this legal outcome is under threat by an secret arbitration panel answering to no one but the entities petitioning it.

In August, a corporate entity whose final controllers are located in the tax haven lodged a claim versus the UK government. Last week a dispute settlement body in Washington DC was convened to consider the case.

The claimant is litigating against the UK for the money it would have generated if the mine had been permitted to proceed. We have little idea how much this sum represents. Which individual is acting on its behalf challenging the British government? A sitting MP, and former attorney-general in the previous government, the noted patriot Sir Geoffrey Cox. The government passes a law, the domestic court supports it, then a foreign company disputes it through an secretive arbitration panel, and a sitting MP represents its behalf.

An Oligarch's Case

Concurrently that the panel on the coalmine case was established, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it appears probable that he will utilise the ISDS mechanism to contest the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously filed a claim against another European state with similar intent, demanding sixteen billion dollars: an amount representing half nation's yearly budget. Part of the counsel acting for him in that case? a prominent lawyer, married to the previous PM.

Legal experts believe that the EU’s hesitation in using frozen Russian assets as collateral for its loan to Ukraine stems from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments might be preventing the funds Ukraine urgently requires.

False Assurances and Mounting Costs

The public was told that these events could not occur. Previously, a senior politician, championing the largest and riskiest of all such treaties, declared: “We’ve signed trade agreement upon trade deal and there has not been a issue in the past.” An expert on this matter labelled campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations had to worry about such legal actions. Predictions that “once firms start to realise the influence bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were dismissed with scepticism.

That prediction has now materialised. This year, energy and extraction companies have lodged a historic level of suits against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – state efforts to halt global warming. Firms have so far won vast sums through ISDS, of which oil majors have obtained eighty-four billion dollars. That represents the combined GDP