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What is your perceive our political system works? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. When a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. However, that used to be how it once functioned. No longer.

The Rise of Shadow Arbitration Panels

Today, overseas companies, or the billionaires who own them, have the power to sue nation states for the policies they pass, at private courts made up of corporate lawyers. The cases are held away from public scrutiny. Differing from national judiciaries, these panels grant no avenue for appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, or even companies based in this country. They are open exclusively to businesses based overseas.

When a secret court determines that a law or policy might diminish the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, running into billions.

These awards are based not on actual losses but compensation the tribunal officials conclude the company could potentially have made. The administration could be forced to rescind the measure. It will be deterred from passing future laws in that area, worried about facing litigation.

A Process Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as firms take cues from each other, and hedge funds bankroll lawsuits in return for a share of the takings. The result? Democratic sovereignty and democratic governance are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the rulings enacted by legislatures is that this clause has been inserted – absent public approval, and frequently under a climate of profound opacity – inside trade treaties.

A Specific Example: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The judge determined that proposals to open the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the bizarre claim that the mine would have had no consequence on national carbon targets. The new government then withdrew the permission the Tories had issued. Today, this victory is under threat by an secret arbitration panel accountable to no one but the companies bringing the case.

During August, a firm whose final controllers are based in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a dispute settlement body in the United States was convened to consider the case.

This firm is suing the UK for the money it might have made if the mine had been permitted to proceed. Citizens have no idea how much this might be. Who is acting on its behalf challenging the UK administration? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The state makes a decision, the domestic court validates it, then a foreign company disputes it through an unaccountable offshore tribunal, and a elected official represents its behalf.

The Russian Lawsuit

Concurrently that the panel on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case at present, but it seems likely that he’ll use the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the war in Ukraine. He has initiated proceedings against another European state with similar intent, seeking a colossal sum: equivalent to half of government’s annual revenue. Part of the legal team representing him there? the wife of a former prime minister, married to the ex-UK leader.

Legal experts believe that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments could be blocking the money Ukraine desperately needs.

Misleading Claims and Growing Threats

Politicians promised that such things could not occur. Previously, a government leader, championing the most significant and hazardous of all these agreements, stated: “The UK has signed trade agreement upon trade deal and we have never seen a problem in the past.” A consultant on this matter described activists of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by such legal actions. 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 greeted by widespread derision.

That prediction is now a reality. In the current period, oil and gas and extraction companies have filed a historic level of suits against nations rich and poor, challenging – like the example of the Whitehaven project – state efforts to stop environmental catastrophe. Corporations have thus far won vast sums via ISDS, of which energy giants have obtained the majority. That represents the combined GDP