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Can you reckon our political system operates? Perhaps something like this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. End of story. Yet, that’s how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, international firms, and the wealthy individuals that control them, are able to litigate against governments for the laws they pass, at private courts staffed by commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these bodies grant no right of appeal or judicial review. You or I are unable to file a case to them, nor can our government, including enterprises operating from this country. The door is open solely for corporations registered abroad.

Should an arbitration panel finds that a legislative action may compromise the corporation’s expected profits, it may order damages of hundreds of millions of pounds, running into billions.

This compensation constitute not tangible damages but funds the arbitrators decide the company would perhaps have made. The government might be compelled to drop the legislation. It will be discouraged from introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of cases are being brought, as corporations learn from each other, and investment funds bankroll lawsuits in return for a cut of the awards. The consequence? National sovereignty and democracy are now prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the choices enacted by parliaments is that this provision has been written – without public consent, and typically amid conditions of profound opacity – inside trade treaties.

A Specific Instance: The Whitehaven Coal Mine

Last year, environmental campaigners won a great victory at the senior court. The presiding officer found that schemes to dig the first deep coalmine in the UK for three decades, in northwest England, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The Labour government then withdrew the permission the former government had issued. Today, this victory could be compromised by an foreign court reporting to exclusively the companies bringing the case.

During August, a firm whose ultimate owners are based in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a dispute settlement body in Washington DC was set up to consider the case.

This firm is suing the UK for the profits it could have earned if the mine had been allowed to commence operations. Citizens have no clear indication how much this sum represents. Who is representing it against the state? A sitting MP, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a international entity disputes it through an unaccountable private court, and a elected official works for its behalf.

A Sanctions Challenge

Simultaneously that the tribunal on the coalmine case was established, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case at present, but it appears probable that he’ll use the tribunal to fight the penalties the UK enacted against him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, seeking sixteen billion dollars: equivalent to half of state's yearly income. Among the counsel on his side? the wife of a former prime minister, wife of the former British prime minister.

Legal experts believe that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments could be blocking the money Ukraine desperately needs.

Misleading Claims and Escalating Threats

Politicians promised that these events wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all such treaties, stated: “The UK has signed trade deal after trade deal and there has never been a problem in the past.” A consultant on this matter described activists of “exaggeration … in reality, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations needed to fear ISDS claims. Predictions that “once firms start to realise the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were greeted by widespread derision.

That prediction is now a reality. Recently, energy and extraction companies have initiated a unprecedented number of claims against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – official measures to stop global warming. Firms have so far won $114bn via ISDS, of which fossil fuel companies have obtained $84bn. That represents the combined GDP