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How do you perceive our political system operates? Maybe something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills pass into law. The law are enforced by the courts. End of story. However, that was how it used to work. Those days are over.

The Advent of Shadow Arbitration Panels

Nowadays, overseas companies, and the billionaires behind them, can sue elected administrations for the regulations they pass, at private courts made up of commercial attorneys. The cases are conducted in secret. Unlike our courts, these bodies provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even enterprises headquartered in this country. They are open exclusively to corporations registered abroad.

If a tribunal determines that a legislative action might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, even billions.

These awards represent not real financial harm but funds the tribunal officials conclude the company might otherwise have made. The government may have to drop the legislation. It will be hesitant to introducing similar legislation in that area, due to the risk of incurring a lawsuit.

A Process Growing Exponentially

Historically high figures of cases are being filed, as firms observe each other, and hedge funds fund legal actions for a share of a share of the awards. The result? National sovereignty and democratic governance are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the choices made by parliaments is that this provision has been incorporated – without democratic mandate, and frequently under conditions of total confidentiality – into international trade agreements.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The judge ruled that proposals to excavate the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no consequence on national carbon targets. The new government then withdrew the licence the former government had approved. Today, this success is under threat by an secret arbitration panel answering to no one but the entities filing the suit.

Last August, a firm whose final controllers are based in the Cayman Islands initiated proceedings challenging the UK government. The previous week a arbitration panel in the United States was established to consider the case.

The company is suing the UK for the money it could have earned if the mine had been allowed to proceed. The public has no idea how much this could amount to. What legal team is acting on its behalf in opposition to the British government? An elected representative, and former attorney-general in the previous government, the noted patriot Geoffrey Cox. The administration makes a decision, the national judiciary supports it, then a foreign company contests it through an secretive arbitration panel, and a elected official represents its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case at present, but it is highly possible that he will utilise the arbitration process to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has already initiated proceedings against a small nation for this reason, seeking a colossal sum: equivalent to half of state's yearly income. Included in the counsel on his side? a prominent lawyer, spouse of the ex-UK leader.

Legal experts believe that the EU’s delay in using frozen state funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over elected governments could be blocking the funds Ukraine urgently requires.

Misleading Claims and Growing Costs

The public was told that such things wouldn’t happen. Previously, a senior politician, championing the largest and riskiest of all these agreements, declared: “The UK has signed investment treaty after trade deal and there has never been a case in the past.” An expert on this matter accused activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that exclusively weaker states needed to fear such legal actions. Predictions that “as corporations begin to understand the influence bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were dismissed with general mockery.

That threat has come to pass. This year, fossil fuel and resource corporations have initiated a record number of suits against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – state efforts to stop global warming. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP