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How do you reckon our political system functions? Maybe along the lines of this. We elect MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. The law is upheld by the courts. Simple as that. However, that used to be how it once functioned. Those days are over.

The Rise of Shadow Arbitration Panels

In the modern era, foreign corporations, or the wealthy individuals that control them, can sue nation states for the laws they pass, at secret arbitration panels composed of business advocates. Such disputes take place away from public scrutiny. Differing from national judiciaries, these panels allow no right of appeal or judicial review. The general public are unable to file a case to them, and neither can our government, including enterprises headquartered in this country. The door is open exclusively to entities based overseas.

When a secret court rules that a government measure might diminish the corporation’s expected profits, it has the power to grant financial penalties of hundreds of millions of pounds, even billions.

This compensation represent not real financial harm but compensation the panel members conclude the company might otherwise have made. The state might be compelled to rescind the measure. It will be discouraged from introducing similar legislation of a similar nature, worried about facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of disputes are being initiated, as companies observe each other, and private equity bankroll lawsuits in return for a portion of the settlements. The outcome? Democratic sovereignty and democracy are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the rulings made by legislatures is that this provision has been written – absent public approval, and often in an atmosphere of profound opacity – within international trade agreements.

A Concrete Instance: The UK Coalmine

Twelve months ago, activists achieved a major legal triumph at the High Court. The judge found that plans to open the first major coal mine in the UK for three decades, in northwest England, had been wrongly permitted by the previous government, which had agreed to the questionable argument that the mine could have zero effect on our carbon budgets. The Labour government then withdrew the licence the previous administration had approved. Now, this legal outcome is under threat by an secret arbitration panel answering to only the entities filing the suit.

In August, a corporate entity whose beneficial owners reside in the offshore financial centre lodged a claim versus the UK government. Recently a dispute settlement body in Washington DC was set up to hear it.

This firm is suing the UK for the money it would have generated if the mine had been allowed to go ahead. The public has no idea how much this sum represents. Who is representing it challenging the UK administration? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the domestic court validates it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Case

Concurrently that the tribunal on the coalmine case was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case so far, but it seems likely that he will utilise the ISDS mechanism to contest the restrictions the UK imposed on him subsequent to the Russian aggression. He has previously started suing a small nation for this reason, claiming $16bn: an amount representing half nation's yearly income. Part of the legal team representing him there? Cherie Blair, spouse of the previous PM.

Legal experts contend that the EU’s hesitation in utilising seized state funds as guarantee for its loan to Ukraine stems from apprehension in Brussels that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Mounting Costs

Politicians promised that these events were not possible. In 2014, a senior politician, promoting the largest and riskiest of all such treaties, told us: “Britain has agreed to trade deal after trade deal and there has never been a case in the past.” A consultant on this matter accused campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that only poorer nations needed to fear these lawsuits. Predictions that “when companies grasp the influence bestowed upon them, they will turn their attention from the weak nations to the strong ones” were greeted by scepticism.

That prediction has now materialised. In the current period, energy and resource corporations have lodged a historic level of suits against nations across the economic spectrum, challenging – like the example of the UK mine – official measures to halt global warming. Firms have so far won vast sums by using ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP