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How do you understand our system of government operates? Perhaps something like this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Well, that used to be how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

Today, international firms, and the wealthy individuals who own them, can sue governments for the laws they pass, at offshore tribunals composed of corporate lawyers. These proceedings are conducted away from public scrutiny. Differing from national judiciaries, these tribunals provide no opportunity to appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, or even companies operating from this country. They are open only to entities registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s expected profits, it may order damages of hundreds of millions, potentially billions.

These sums are based not on actual losses but funds the panel members determine the company would perhaps have made. The government may have to abandon its policy. It will be discouraged from enacting future policies of a similar nature, for fear of facing litigation.

A Process Growing Exponentially

Unprecedented levels of cases are being brought, as firms observe each other, and investment funds bankroll lawsuits for a share of a share of the settlements. The outcome? Democratic sovereignty and popular rule are now unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the rulings enacted by parliaments is that this provision has been inserted – without democratic mandate, and often in an atmosphere of total confidentiality – into trade treaties.

A Real-World Instance: The UK Coalmine

Twelve months ago, activists secured a significant win at the high court. The justice determined that proposals to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, had been illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have no consequence on national carbon targets. The incoming administration subsequently revoked the permission the former government had approved. Today, this success faces being overturned by an foreign court answering to only the companies bringing the case.

During August, a firm whose final controllers are located in the tax haven lodged a claim against the UK government. The previous week a dispute settlement body in the US capital was established to hear it.

The claimant is suing the UK for the profits it could have earned if the mine had received permission to commence operations. Citizens have no idea how much this could amount to. Which individual is serving as its counsel against the UK administration? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the national judiciary validates it, then a foreign company challenges it through an secretive arbitration panel, and a sitting MP represents its behalf.

The Russian Lawsuit

Simultaneously that the court on the coal mine dispute was appointed, we learned from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case to date, but it seems likely that he’ll use the arbitration process to challenge the sanctions the UK imposed on him following the war in Ukraine. He has initiated proceedings against a small nation with similar intent, demanding a colossal sum: an amount representing half nation's annual revenue. Included in the legal team acting for him in that case? a prominent lawyer, married to the ex-UK leader.

International law scholars argue that the EU’s delay in using frozen state funds as security for its financial support package stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments could be blocking the finance Ukraine desperately needs.

Empty Promises and Mounting Costs

The public was told that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, told us: “We’ve signed trade deal after trade deal and there has never been a case in the past.” A consultant on this matter described activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations had to worry about such legal actions. Warnings that “when companies begin to understand the power bestowed upon them, they will redirect their efforts from the weak nations to the strong ones” were met with scepticism.

That prediction is now a reality. Recently, oil and gas and extraction companies have initiated a unprecedented number of suits against nations across the economic spectrum, contesting – like the example of the Whitehaven project – government attempts to halt climate breakdown. Firms have to date won vast sums via ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP