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How do you perceive our system of government works? Perhaps along the lines of this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills become law. Statutes is maintained by the courts. Simple as that. Yet, that’s how it used to work. No longer.

The Rise of Shadow Arbitration Panels

Today, overseas companies, or the wealthy individuals who own them, have the power to sue elected administrations for the regulations they pass, at secret arbitration panels composed of business advocates. The cases are conducted in secret. In contrast to domestic courts, these panels allow no opportunity to appeal or legal review. The general public cannot take a case to them, and neither can our government, including enterprises operating from this country. They are open exclusively to entities registered abroad.

If a tribunal rules that a government measure might diminish the corporation’s expected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These sums constitute not actual losses but funds the panel members conclude the company could potentially have made. The government might be compelled to drop the legislation. It becomes hesitant to introducing similar legislation of a similar nature, worried about facing litigation.

A System Spiralling Out of Control

Unprecedented levels of cases are being brought, as firms take cues from each other, and private equity bankroll lawsuits in exchange for a portion of the takings. The outcome? Democratic sovereignty and democracy are turning into prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the choices made by legislatures is that this provision has been inserted – without public consent, and frequently under conditions of total confidentiality – within bilateral investment treaties.

A Specific Example: The UK Coalmine

Twelve months ago, activists achieved a major legal triumph at the senior court. The justice determined that schemes to dig the first new deep coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the outgoing administration, which had accepted the extraordinary assertion that the mine would have zero effect on our carbon budgets. The new government then withdrew the consent the previous administration had granted. Now, this legal outcome is under threat by an foreign court accountable to only the companies bringing the case.

In August, a corporate entity whose beneficial owners are located in the Cayman Islands filed a lawsuit against the UK government. The previous week a dispute settlement body in the US capital was convened to hear it.

The claimant is suing the UK for the revenue it could have earned if the mine had been allowed to commence operations. We have no clear indication how much this could amount to. Which individual is acting on its behalf against the state? A member of parliament, and ex-law officer in the outgoing administration, that great patriot the MP. The administration makes a decision, the national judiciary upholds it, then a overseas corporation challenges it through an undemocratic private court, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case so far, but it appears probable that he may employ the arbitration process to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has already filed a claim against Luxembourg on these grounds, claiming sixteen billion dollars: an amount representing half government’s yearly income. Among the counsel acting for him in that case? the wife of a former prime minister, wife of the previous PM.

International law scholars contend that the EU’s hesitation in utilising seized oligarchs' funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over sovereign states may be obstructing the funds Ukraine critically depends on.

Misleading Claims and Escalating Costs

The public was told that such things wouldn’t happen. Years ago, a senior politician, promoting the biggest and most dangerous of all such treaties, stated: “We’ve signed investment treaty after trade deal and we have never seen a case in the past.” A consultant on this topic accused activists of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that solely developing countries should be concerned by such legal actions. Predictions that “as corporations start to realise the influence they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with scepticism.

That prediction is now a reality. In the current period, energy and extraction companies have lodged a historic level of suits against nations across the economic spectrum, opposing – as in the case of the Cumbrian coalmine – official measures to halt climate breakdown. Firms have to date won vast sums through ISDS, of which oil majors have secured $84bn. That equates to the combined GDP