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Can you understand our system of government functions? It could be something like this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. Well, that was how it used to work. Not anymore.

The Emergence of Shadow Arbitration Panels

Today, international firms, or the wealthy individuals that control them, can sue nation states for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are held away from public scrutiny. Unlike our courts, these bodies grant no right of appeal or legal review. The general public are barred from bringing a case to them, just as our government, including enterprises based in this country. Access is granted solely for corporations based overseas.

If a tribunal rules that a legislative action might diminish the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions, even billions.

This compensation represent not actual losses but funds the panel members decide the company might otherwise have made. The state may have to drop the legislation. It will be deterred from enacting future policies of a similar nature, for fear of being sued.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being brought, as corporations take cues from each other, and investment funds fund legal actions for a share of a portion of the takings. The consequence? Sovereignty and democracy are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the choices made by parliaments is that this stipulation has been incorporated – without democratic mandate, and typically amid an atmosphere of profound opacity – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, activists achieved a major legal triumph at the High Court. The judge found that proposals to dig the first new deep coal mine in the UK for 30 years, in northwest England, were illegally sanctioned by the outgoing administration, which had accepted the bizarre claim that the mine would have zero effect on climate commitments. The incoming administration subsequently revoked the permission the previous administration had approved. Today, this victory could be compromised by an offshore tribunal answering to only the corporations bringing the case.

Last August, a firm whose final controllers are located in the tax haven filed a lawsuit versus the UK government. Recently a arbitration panel in the United States was convened to consider the case.

The claimant is suing the UK for the money it could have earned if the mine had received permission to proceed. Citizens have no clear indication how much this sum represents. Which individual is serving as its counsel against the UK administration? An elected representative, and former attorney-general in the previous government, that great patriot Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a overseas corporation challenges it through an unaccountable arbitration panel, and a elected official works for its behalf.

The Russian Case

On the same day that the court on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it seems likely that he’ll use the arbitration process to fight the sanctions the UK levied against him following the war in Ukraine. He has previously started suing another European state for this reason, claiming sixteen billion dollars: half that government’s yearly income. Part of the lawyers representing him there? a prominent lawyer, wife of the former British prime minister.

Legal experts contend that the EU’s delay in utilising seized Russian assets as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over elected governments could be blocking the money Ukraine critically depends on.

Misleading Claims and Escalating Costs

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, championing the biggest and most dangerous of all these agreements, stated: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this topic described critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states had to worry about such legal actions. Cautionary notes that “once firms begin to understand the authority they now possess, they will shift their focus from the poorer states to the developed economies” were greeted by scepticism.

That warning has now materialised. This year, oil and gas and mining firms have initiated a unprecedented number of claims against nations both wealthy and developing, challenging – as in the case of the UK mine – state efforts to stop global warming. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP