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Can you understand our political system works? Perhaps similar to this. Citizens choose MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. The law is maintained by the courts. Simple as that. Yet, that was how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, and the wealthy individuals who own them, can sue governments for the laws they pass, at private courts composed of business advocates. These proceedings are conducted behind closed doors. Unlike our courts, these bodies allow no avenue for appeal or legal review. The general public cannot take a case to them, nor can our government, including businesses based in this country. They are open solely for corporations based overseas.

When a secret court determines that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant damages of vast sums, running into billions.

These sums are based not on real financial harm but compensation the panel members determine the company might otherwise have made. The administration may have to abandon its policy. It is deterred from passing future laws in that area, worried about incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being filed, as firms learn from each other, and private equity fund legal actions for a share of a share of the takings. The consequence? Sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the rulings made by elected bodies is that this clause has been incorporated – without democratic mandate, and typically amid a climate of extreme secrecy – into trade treaties.

A Concrete Instance: The Cumbrian Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer ruled that plans to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no consequence on our carbon budgets. The incoming administration subsequently revoked the consent the previous administration had granted. Now, this legal outcome could be compromised by an foreign court answering to only the companies petitioning it.

During August, a firm whose beneficial owners reside in the Cayman Islands initiated proceedings versus the UK government. Last week a arbitration panel in the US capital was established to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. Citizens have no idea how much this could amount to. What legal team is serving as its counsel against the state? An elected representative, and ex-law officer in the previous government, that great patriot the MP. The government passes a law, the domestic court supports it, then a overseas corporation contests it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Case

Simultaneously that the panel on the mining lawsuit was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case to date, but it is highly possible that he’ll use the arbitration process to contest the sanctions the UK enacted against him after the invasion of Ukraine. He has already started suing another European state with similar intent, claiming $16bn: equivalent to half of nation's yearly budget. Included in the counsel acting for him in that case? a prominent lawyer, wife of the previous PM.

Legal experts contend that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its loan to Ukraine is due to Belgium’s fear that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over democratic administrations might be preventing the finance Ukraine urgently requires.

Empty Promises and Escalating Costs

Politicians promised that these scenarios could not occur. Years ago, a government leader, championing the biggest and most dangerous of all these agreements, stated: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” An adviser on this matter accused critics of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that solely developing countries had to worry about ISDS claims. Warnings that “once firms start to realise the influence they now possess, they will turn their attention from the weak nations to the strong ones” were dismissed with general mockery.

That threat has come to pass. In the current period, oil and gas and resource corporations have filed a record number of claims against nations both wealthy and developing, challenging – like the example of the Cumbrian coalmine – state efforts to stop environmental catastrophe. Firms have thus far won $114bn by using ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP