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What is your perceive our political system works? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills are enacted as law. The law are enforced by the courts. End of story. Yet, that used to be how it once functioned. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, overseas companies, and the wealthy individuals who own them, have the power to sue governments for the laws they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held in secret. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even businesses based in this country. Access is granted exclusively to businesses registered abroad.

Should an arbitration panel determines that a government measure may compromise the corporation’s projected profits, it has the power to grant damages of hundreds of millions, even billions.

These awards represent not real financial harm but funds the tribunal officials determine the company could potentially have made. The government might be compelled to rescind the measure. It becomes discouraged from passing future laws in that area, due to the risk of facing litigation.

A System Running Rampant

Record numbers of legal actions are being initiated, as corporations take cues from each other, and investment funds fund legal actions in exchange for a share of the settlements. The consequence? Democratic sovereignty and popular rule are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it can override a country's own laws and the choices taken by legislatures is that this clause has been incorporated – absent public approval, and typically amid conditions of total confidentiality – within bilateral investment treaties.

A Specific Instance: The Cumbrian Coalmine

A year ago, a conservation group secured a significant win at the senior court. The justice found that schemes to open the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the previous government, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The new government subsequently revoked the permission the former government had granted. Now, this success faces being overturned by an foreign court answering to only the entities bringing the case.

Last August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings against the UK government. The previous week a tribunal in Washington DC was established to hear it.

The company is suing the UK for the revenue it could have earned if the mine had been permitted to commence operations. We have no idea how much this might be. Which individual is acting on its behalf challenging the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The government enacts a policy, the high court supports it, then a foreign company disputes it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was established, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case at present, but it appears probable that he may employ the ISDS mechanism to contest the restrictions the UK levied against him following the Russian aggression. He has already initiated proceedings against Luxembourg on these grounds, claiming a colossal sum: an amount representing half state's annual revenue. Included in the lawyers representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

False Assurances and Mounting Threats

Politicians promised that such things were not possible. Years ago, a government leader, championing the largest and riskiest of all investment pacts, told us: “We’ve signed trade deal after trade deal and we have never seen a case in the past.” A consultant on this matter accused critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “when companies start to realise the influence bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were greeted by general mockery.

That prediction has come to pass. In the current period, fossil fuel and mining firms have filed a historic level of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – state efforts to halt global warming. Companies have so far won $114bn by using ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP