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How do you perceive our system of government works? Maybe something like this. We elect MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. Simple as that. However, that was how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

Today, international firms, and the wealthy individuals behind them, are able to litigate against nation states for the policies they pass, at secret arbitration panels composed of business advocates. The cases take place in secret. Unlike our courts, these panels allow no right of appeal or legal review. Ordinary citizens are unable to file a case to them, and neither can our government, including enterprises operating from this country. The door is open solely for corporations based overseas.

When a secret court determines that a law or policy may compromise the corporation’s projected profits, it may order financial penalties of hundreds of millions of pounds, potentially billions.

These awards represent not real financial harm but compensation the tribunal officials decide the company would perhaps have made. The administration may have to rescind the measure. It is hesitant to passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being brought, as firms observe each other, and hedge funds finance suits for a share of a cut of the awards. The consequence? Democratic sovereignty and democratic governance are turning into too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump a country's own laws and the rulings made by legislatures is that this provision has been incorporated – absent public approval, and often in an atmosphere of profound opacity – within international trade agreements.

A Specific Case: The UK Coalmine

A year ago, a conservation group secured a significant win at the High Court. The justice determined that plans to dig the first major coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The Labour government then withdrew the consent the Tories had issued. Now, this success is under threat by an offshore tribunal accountable to only the companies bringing the case.

In August, a company whose final controllers reside in the tax haven filed a lawsuit challenging the UK government. The previous week a dispute settlement body in Washington DC was convened to consider the case.

The claimant is suing the UK for the revenue it would have generated if the mine had received permission to go ahead. Citizens have no idea how much this could amount to. Which individual is acting on its behalf in opposition to the UK administration? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The state passes a law, the high court upholds it, then a international entity contests it through an undemocratic private court, and a elected official works for its behalf.

The Russian Challenge

Simultaneously that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it appears probable that he may employ the ISDS mechanism to contest the penalties the UK imposed on him after the Russian aggression. He has previously started suing another European state on these grounds, demanding a colossal sum: half that government’s yearly income. Included in the counsel on his side? a prominent lawyer, wife of the ex-UK leader.

International law scholars contend that the EU’s delay in utilising seized oligarchs' funds as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, unaccountable authority over democratic administrations could be blocking the money Ukraine urgently requires.

False Assurances and Mounting Costs

The public was told that such things were not possible. Years ago, a former prime minister, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade deal upon trade deal and there has never been a problem in the past.” An adviser on this issue labelled campaigners of “alarmism … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms begin to understand the influence they’ve been granted, they will shift their focus from the poorer states to the strong ones” were dismissed with scepticism.

That threat is now a reality. Recently, fossil fuel and resource corporations have filed a historic level of claims against nations across the economic spectrum, opposing – similar to the Whitehaven project – government attempts to halt global warming. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured $84bn. That represents the combined GDP