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How do you reckon our system of government operates? It could be something like this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. The law is upheld by the courts. End of story. However, that used to be how it used to work. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, international firms, and the oligarchs who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels made up of commercial attorneys. Such disputes are held away from public scrutiny. Unlike our courts, these bodies provide no avenue for appeal or legal review. The general public are unable to file a case to them, nor can our government, or even enterprises based in this country. The door is open only to businesses operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

These awards constitute not real financial harm but money the panel members conclude the company would perhaps have made. The administration could be forced to abandon its policy. It will be discouraged from passing future laws along the same lines, worried about facing litigation.

A Process Running Rampant

Record numbers of disputes are being filed, as companies take cues from each other, and investment funds finance suits in return for a portion of the awards. The outcome? Sovereignty and popular rule are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it can override a country's own laws and the choices enacted by parliaments is that this provision has been inserted – without democratic mandate, and often in an atmosphere of extreme secrecy – into bilateral investment treaties.

A Specific Instance: The Whitehaven Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer found that plans to open the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the extraordinary assertion that the mine would have no impact on climate commitments. The incoming administration subsequently revoked the permission the former government had granted. Today, this success faces being overturned by an offshore tribunal reporting to only the companies petitioning it.

Last August, a company whose beneficial owners are based in the Cayman Islands initiated proceedings versus the UK government. Recently a arbitration panel in Washington DC was convened to consider the case.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. What legal team is serving as its counsel against the state? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a international entity contests it through an secretive arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

On the same day that the court on the mining lawsuit was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case to date, but it seems likely that he may employ the arbitration process to fight the restrictions the UK enacted against him following the Russian aggression. He has initiated proceedings against a small nation on these grounds, demanding sixteen billion dollars: half that government’s yearly budget. Part of the legal team on his side? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars argue that the EU’s delay in leveraging immobilised Russian assets as collateral for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over sovereign states may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Mounting Costs

We were assured that such things wouldn’t happen. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and there has never been a case in the past.” A consultant on this matter described critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries had to worry about these lawsuits. Predictions that “once firms begin to understand the influence bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were met with widespread derision.

That prediction has come to pass. Recently, fossil fuel and extraction companies have filed a record number of claims against nations both wealthy and developing, challenging – similar to the Cumbrian coalmine – official measures to halt climate breakdown. Companies have so far won vast sums through ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP