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How do you reckon our system of government works? It could be similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. Simple as that. However, that used to be how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals who own them, are able to litigate against governments for the policies they pass, at private courts staffed by business advocates. Such disputes are held away from public scrutiny. In contrast to domestic courts, these tribunals provide no opportunity to appeal or legal review. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises headquartered in this country. They are open solely for corporations based overseas.

Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it can award damages of hundreds of millions of pounds, potentially billions.

These sums represent not actual losses but compensation the tribunal officials decide the company could potentially have made. The government may have to rescind the measure. It will be deterred from passing future laws along the same lines, worried about incurring a lawsuit.

A System Running Rampant

Historically high figures of disputes are being initiated, as firms take cues from each other, and hedge funds finance suits in exchange for a cut of the settlements. The consequence? National sovereignty and democracy are now too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede a country's own laws and the rulings enacted by elected bodies is that this clause has been inserted – absent public approval, and often in an atmosphere of extreme secrecy – inside bilateral investment treaties.

A Real-World Example: The Whitehaven Coalmine

Twelve months ago, activists secured a significant win at the senior court. The justice determined that schemes to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine would have had no consequence on national carbon targets. The Labour government later cancelled the permission the Tories had approved. Now, this success could be compromised by an offshore tribunal answering to exclusively the companies filing the suit.

Last August, a company whose final controllers are located in the offshore financial centre filed a lawsuit against the UK government. The previous week a dispute settlement body in the United States was established to adjudicate on it.

This firm is litigating against the UK for the profits it would have generated if the mine had received permission to proceed. We have little idea how much this could amount to. Who is serving as its counsel challenging the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot Sir Geoffrey Cox. The administration passes a law, the high court supports it, then a overseas corporation disputes it through an secretive offshore tribunal, and a member of our parliament works for its behalf.

The Russian Case

Concurrently that the panel on the coalmine case was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know nothing of the case at present, but it appears probable that he will utilise the ISDS mechanism to contest the restrictions the UK levied against him following the war in Ukraine. He has already initiated proceedings against Luxembourg for this reason, seeking $16bn: half that government’s yearly income. Included in the legal team representing him there? Cherie Blair, wife of the ex-UK leader.

Legal experts contend that the EU’s procrastination in utilising seized Russian assets as security for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over elected governments may be obstructing the finance Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that these events wouldn’t happen. Previously, a senior politician, advocating for the biggest and most dangerous of all these agreements, told us: “Britain has agreed to trade deal after trade deal and we have never seen a issue in the past.” An adviser on this topic accused critics of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “as corporations grasp the power they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That threat has come to pass. This year, fossil fuel and mining firms have initiated a unprecedented number of claims against nations both wealthy and developing, challenging – as in the case of the UK mine – official measures to stop climate breakdown. Companies have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP