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How do you perceive our democratic process functions? It could be similar to this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Legislation is upheld by the courts. That's it. Yet, that used to be how it once functioned. No longer.

The Rise of Secret Arbitration Panels

Nowadays, international firms, and the billionaires behind them, have the power to sue nation states for the laws they pass, at secret arbitration panels made up of commercial attorneys. The cases are held away from public scrutiny. In contrast to domestic courts, these panels allow no right of appeal or oversight by judges. The general public cannot take a case to them, and neither can our government, or even companies operating from this country. They are open only to businesses operating from foreign soil.

Should an arbitration panel rules that a legislative action might diminish the corporation’s expected profits, it may order damages of hundreds of millions of pounds, potentially billions.

These awards are based not on real financial harm but money the arbitrators determine the company might otherwise have made. The administration could be forced to rescind the measure. It is deterred from enacting future policies in that area, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of disputes are being filed, as firms learn from each other, and investment funds bankroll lawsuits in return for a cut of the takings. The outcome? National sovereignty and popular rule are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the choices made by legislatures is that this provision has been incorporated – without public consent, and often in conditions of extreme secrecy – into trade treaties.

A Real-World Case: The UK Coal Mine

A year ago, environmental campaigners won a great victory at the high court. The justice found that plans to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, had been illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have had zero effect on climate commitments. The new government then withdrew the permission the previous administration had approved. Today, this victory is under threat by an secret arbitration panel answering to only the entities filing the suit.

During August, a corporate entity whose ultimate owners are based in the offshore financial centre lodged a claim challenging the UK government. The previous week a tribunal in the United States was established to hear it.

This firm is litigating against the UK for the revenue it could have earned if the mine had been permitted to proceed. We have little idea how much this might be. Which individual is representing it in opposition to the British government? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The state enacts a policy, the domestic court upholds it, then a foreign company contests it through an unaccountable offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Challenge

Simultaneously that the tribunal on the coalmine case was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he will utilise the ISDS mechanism to contest the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, seeking sixteen billion dollars: half that nation's annual revenue. Part of the counsel on his side? Cherie Blair, wife of the ex-UK leader.

International law scholars believe that the EU’s procrastination in leveraging immobilised state funds as security for its financial support package arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states could be blocking the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

The public was told that these events could not occur. In 2014, a government leader, promoting the largest and riskiest of all such treaties, declared: “Britain has agreed to investment treaty upon trade deal and there has never been a issue in the past.” A consultant on this topic labelled activists of “alarmism … in reality, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “once firms begin to understand the influence bestowed upon them, they will shift their focus from the weak nations to the developed economies” were greeted by scepticism.

That threat has now materialised. In the current period, oil and gas and mining firms have lodged a historic level of suits against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – government attempts to stop environmental catastrophe. Corporations have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP