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Can you understand our political system functions? It could be along the lines of this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. The law is maintained by the courts. End of story. Yet, that used to be how it once functioned. No longer.

The Advent of Shadow Arbitration Panels

Nowadays, foreign corporations, along with the oligarchs that control them, can sue elected administrations for the laws they pass, at private courts staffed by corporate lawyers. These proceedings are held behind closed doors. Unlike our courts, these bodies allow no right of appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted exclusively to businesses registered abroad.

Should an arbitration panel rules that a government measure may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions, potentially billions.

These sums constitute not real financial harm but compensation the tribunal officials decide the company could potentially have made. The state may have to abandon its policy. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of being sued.

A System Running Rampant

Historically high figures of legal actions are being filed, as firms learn from each other, and investment funds bankroll lawsuits in exchange for a portion of the settlements. The consequence? Democratic sovereignty and democratic governance are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the rulings taken by parliaments is that this stipulation has been incorporated – absent public approval, and typically amid an atmosphere of total confidentiality – into trade treaties.

A Specific Instance: The UK Coalmine

Last year, environmental campaigners achieved a major legal triumph at the high court. The presiding officer determined that schemes to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had no impact on our carbon budgets. The Labour government then withdrew the permission the Tories had granted. Today, this legal outcome faces being overturned by an offshore tribunal reporting to exclusively the corporations petitioning it.

Last August, a company whose beneficial owners are based in the tax haven filed a lawsuit against the UK government. Last week a dispute settlement body in Washington DC was established to hear it.

This firm is suing the UK for the revenue it would have generated if the mine had received permission to proceed. The public has no clear indication how much this might be. What legal team is serving as its counsel challenging the state? An elected representative, and ex-law officer in the previous government, the noted patriot Sir Geoffrey Cox. The state passes a law, the domestic court supports it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

The Russian Case

Simultaneously that the panel on the coalmine case was convened, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case so far, but it is highly possible that he’ll use the arbitration process to challenge the sanctions the UK levied against him following the invasion of Ukraine. He has already started suing a small nation for this reason, seeking $16bn: an amount representing half state's yearly budget. Among the counsel acting for him in that case? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists contend that the EU’s hesitation in leveraging immobilised oligarchs' funds as security for its financial support package arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

False Assurances and Growing Risks

We were assured that these events could not occur. Years ago, a former prime minister, advocating for the largest and riskiest of all investment pacts, declared: “The UK has signed investment treaty after trade deal and we have never seen a case in the past.” A consultant on this matter labelled critics of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression was crafted to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies begin to understand the influence they’ve been granted, they will turn their attention from the weak nations to the strong ones” were greeted by scepticism.

That warning is now a reality. This year, fossil fuel and extraction companies have filed a record number of suits against nations rich and poor, opposing – like the example of the UK mine – official measures to stop global warming. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP