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How do you understand our political system functions? Maybe similar to this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills are enacted as law. The law is maintained by the courts. Simple as that. Yet, that used to be how it operated in the past. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, international firms, along with the billionaires that control them, are able to litigate against governments for the policies they pass, at secret arbitration panels composed of business advocates. These proceedings are held away from public scrutiny. Unlike our courts, these tribunals grant no avenue for appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, or even companies operating from this country. Access is granted only to entities based overseas.

When a secret court finds that a government measure may compromise the corporation’s anticipated profits, it has the power to grant damages of hundreds of millions of pounds, potentially billions.

This compensation are based not on actual losses but funds the panel members decide the company could potentially have made. The state may have to drop the legislation. It becomes discouraged from introducing similar legislation along the same lines, due to the risk of being sued.

A Process Running Rampant

Unprecedented levels of cases are being initiated, as corporations take cues from each other, and private equity bankroll lawsuits for a share of a portion of the awards. The consequence? National sovereignty and popular rule are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the rulings enacted by legislatures is that this provision has been written – without democratic mandate, and frequently under an atmosphere of total confidentiality – into trade treaties.

A Real-World Case: The UK Coalmine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer determined that schemes to excavate the first deep coalmine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine would have zero effect on national carbon targets. The Labour government subsequently revoked the permission the previous administration had approved. Currently, this success could be compromised by an secret arbitration panel answering to no one but the entities bringing the case.

In August, a company whose beneficial owners are located in the offshore financial centre lodged a claim versus the UK government. Last week a arbitration panel in the United States was established to consider the case.

The company is seeking compensation from the UK for the money it would have generated if the mine had received permission to proceed. We have no idea how much this could amount to. Who is representing it challenging the state? An elected representative, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The state passes a law, the national judiciary supports it, then a overseas corporation challenges it through an unaccountable private court, and a member of our parliament acts on its behalf.

The Russian Case

Simultaneously that the court on the coalmine case was established, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case so far, but it seems likely that he may employ the ISDS mechanism to contest the sanctions the UK levied against him subsequent to the war in Ukraine. He has filed a claim against another European state with similar intent, seeking a colossal sum: an amount representing half nation's annual revenue. Included in the counsel acting for him in that case? a prominent lawyer, wife of the ex-UK leader.

International law scholars believe that the EU’s procrastination in using frozen Russian assets as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, undemocratic power over sovereign states might be preventing the funds Ukraine desperately needs.

Misleading Claims and Growing Risks

We were assured that these events could not occur. Previously, a former prime minister, promoting the largest and riskiest of all such treaties, stated: “Britain has agreed to trade deal upon trade deal and we have never seen a case in the past.” An adviser on this matter accused activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Cautionary notes that “as corporations grasp the power bestowed upon them, they will turn their attention from the poorer states to the strong ones” were dismissed with widespread derision.

That warning is now a reality. Recently, fossil fuel and resource corporations have filed a unprecedented number of suits against nations across the economic spectrum, opposing – like the example of the UK mine – state efforts to stop climate breakdown. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP