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What is your perceive our political system functions? It could be similar to this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. The law is maintained by the courts. End of story. However, that was how it operated in the past. Those days are over.

The Rise of Secret Arbitration Panels

In the modern era, foreign corporations, and the wealthy individuals who own them, are able to litigate against governments for the policies they pass, at offshore tribunals staffed by commercial attorneys. The cases are held behind closed doors. Unlike our courts, these panels allow no avenue for appeal or legal review. You or I are unable to file a case to them, nor can our government, including enterprises operating from this country. They are open exclusively to businesses registered abroad.

If a tribunal rules that a legislative action might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, potentially billions.

These awards are based not on tangible damages but funds the tribunal officials decide the company might otherwise have made. The government could be forced to abandon its policy. It will be deterred from enacting future policies along the same lines, for fear of incurring a lawsuit.

A System Growing Exponentially

Record numbers of legal actions are being filed, as firms take cues from each other, and hedge funds fund legal actions in exchange for a cut of the awards. The result? Democratic sovereignty and popular rule are now unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede domestic law and the decisions taken by elected bodies is that this stipulation has been written – absent public approval, and typically amid a climate of extreme secrecy – within bilateral investment treaties.

A Real-World Example: The UK Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the high court. The judge found that schemes to excavate the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the permission the Tories had approved. Now, this success is under threat by an secret arbitration panel answering to exclusively the companies filing the suit.

In August, a company whose ultimate owners reside in the tax haven lodged a claim challenging the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the money it would have generated if the mine had received permission to commence operations. Citizens have little idea how much this could amount to. What legal team is acting on its behalf in opposition to the UK administration? An elected representative, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

The Russian Challenge

On the same day that the panel on the coalmine case was appointed, information emerged 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 so far, but it appears probable that he may employ the arbitration process to fight the sanctions the UK enacted against him following the invasion of Ukraine. He has already filed a claim against another European state for this reason, claiming sixteen billion dollars: half that state's yearly budget. Among the lawyers on his side? Cherie Blair, married to the previous PM.

International law scholars contend that the EU’s delay in utilising seized oligarchs' funds as guarantee for its loan to Ukraine stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over sovereign states could be blocking the funds Ukraine desperately needs.

Misleading Claims and Growing Risks

Politicians promised that such things wouldn’t happen. Years ago, a former prime minister, championing the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has never been a case in the past.” An expert on this topic accused critics of “alarmism … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Predictions that “when companies start to realise the authority they’ve been granted, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with widespread derision.

That warning has come to pass. Recently, oil and gas and resource corporations have lodged a record number of suits against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – official measures to stop environmental catastrophe. Companies have to date won $114bn via ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP