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Can you perceive our political system works? It could be along the lines of this. Citizens choose MPs. They vote on bills. When a majority is secured, the bills are enacted as law. The law is maintained by the courts. That's it. Yet, that used to be how it once functioned. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, along with the billionaires behind them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these panels grant no right of appeal or legal review. Ordinary citizens cannot take a case to them, just as our government, including companies headquartered in this country. The door is open only to businesses operating from foreign soil.

If a tribunal determines that a law or policy might diminish the corporation’s projected profits, it has the power to grant damages of vast sums, even billions.

These awards represent not real financial harm but money the arbitrators conclude the company could potentially have made. The state might be compelled to abandon its policy. It becomes deterred from enacting future policies in that area, worried about being sued.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as firms observe each other, and investment funds finance suits in return for a cut of the takings. The outcome? Democratic sovereignty and democracy are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the rulings enacted by legislatures is that this stipulation has been inserted – without public consent, and typically amid conditions of extreme secrecy – inside trade treaties.

A Real-World Example: The UK Coalmine

Twelve months ago, environmental campaigners won a great victory at the High Court. The judge determined that plans to dig the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have no consequence on our carbon budgets. The Labour government later cancelled the consent the Tories had granted. Today, this success is under threat by an secret arbitration panel answering to no one but the corporations filing the suit.

During August, a company whose final controllers reside in the offshore financial centre filed a lawsuit challenging the UK government. The previous week a arbitration panel in the United States was established to adjudicate on it.

This firm is suing the UK for the profits it might have made if the mine had received permission to proceed. We have no clear indication how much this could amount to. Who is representing it against the UK administration? A sitting MP, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The government makes a decision, the high court upholds it, then a overseas corporation contests it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Concurrently that the court on the coalmine case 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 so far, but it appears probable that he may employ the ISDS mechanism to fight the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has already initiated proceedings against another European state with similar intent, demanding a colossal sum: equivalent to half of government’s yearly income. Included in the counsel on his side? Cherie Blair, wife of the ex-UK leader.

Trade specialists argue that the EU’s hesitation in utilising seized state funds as security for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over elected governments might be preventing the money Ukraine urgently requires.

Empty Promises and Growing Costs

Politicians promised that such things were not possible. Years ago, a senior politician, advocating for the most significant and hazardous of all such treaties, told us: “We’ve signed trade agreement upon trade deal and we have never seen a issue in the past.” A consultant on this topic described campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations had to worry about such legal actions. Warnings that “once firms grasp the influence they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were met with scepticism.

That prediction has come to pass. This year, oil and gas and mining firms have lodged a unprecedented number of cases against nations across the economic spectrum, contesting – as in the case of the UK mine – state efforts to stop environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which energy giants have obtained the majority. That represents the combined GDP