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Can you reckon our system of government works? It could be along the lines of this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. Legislation are enforced by the courts. End of story. However, that’s how it once functioned. Those days are over.

The Rise of Secret Arbitration Panels

Nowadays, foreign corporations, along with the wealthy individuals who own them, can sue nation states for the laws they pass, at secret arbitration panels made up of commercial attorneys. These proceedings take place in secret. Unlike our courts, these tribunals provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, nor can our government, or even companies operating from this country. They are open only to businesses operating from foreign soil.

If a tribunal determines that a legislative action may compromise the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

These awards represent not tangible damages but compensation the tribunal officials conclude the company would perhaps have made. The state could be forced to abandon its policy. It is deterred from introducing similar legislation in that area, for fear of facing litigation.

A System Running Rampant

Unprecedented levels of legal actions are being initiated, as companies take cues 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 now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can supersede a country's own laws and the rulings taken by parliaments is that this provision has been written – absent public approval, and frequently under an atmosphere of total confidentiality – within trade treaties.

A Specific Case: The Whitehaven Coalmine

Twelve months ago, a conservation group won a great victory at the High Court. The presiding officer found that proposals to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine could have zero effect on national carbon targets. The Labour government later cancelled the consent the Tories had issued. Currently, this legal outcome could be compromised by an secret arbitration panel accountable to no one but the entities petitioning it.

During August, a company whose beneficial owners are located in the offshore financial centre lodged a claim against the UK government. Recently a tribunal in the United States was established to adjudicate on it.

The claimant is suing the UK for the revenue it could have earned if the mine had been permitted to proceed. Citizens have no idea how much this might be. What legal team is serving as its counsel challenging the UK administration? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the national judiciary upholds it, then a overseas corporation contests it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

A Sanctions Case

Concurrently that the court on the coal mine dispute was convened, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case to date, but it appears probable that he may employ the arbitration process to challenge the sanctions the UK levied against him subsequent to the Russian aggression. He has already filed a claim against another European state with similar intent, claiming a colossal sum: half that government’s yearly budget. Included in the counsel representing him there? a prominent lawyer, spouse of the ex-UK leader.

International law scholars contend that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package arises from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations might be preventing the finance Ukraine desperately needs.

Empty Promises and Escalating Costs

Politicians promised that such things were not possible. Previously, a former prime minister, promoting the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” A consultant on this issue accused activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message appeared to be that solely developing countries needed to fear such legal actions. Predictions that “once firms start to realise the authority bestowed upon them, they will redirect their efforts from the vulnerable countries to the developed economies” were met with scepticism.

That warning has now materialised. In the current period, energy and resource corporations have initiated a unprecedented number of claims against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – official measures to halt climate breakdown. Companies have so far won $114bn by using ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP