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Can you understand our system of government works? It could be something like this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Rise of Shadow Arbitration Panels

Today, overseas companies, and the wealthy individuals who own them, have the power to sue governments for the laws they pass, at offshore tribunals composed of corporate lawyers. These proceedings are held behind closed doors. In contrast to domestic courts, these panels allow no avenue for appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even businesses operating from this country. The door is open solely for corporations operating from foreign soil.

Should an arbitration panel finds that a legislative action might diminish the corporation’s projected profits, it may order compensation of hundreds of millions of pounds, potentially billions.

These sums constitute not real financial harm but money the arbitrators conclude the company would perhaps have made. The government could be forced to abandon its policy. It becomes discouraged from passing future laws in that area, for fear of facing litigation.

A Process Spiralling Out of Control

Historically high figures of legal actions are being filed, as companies observe each other, and investment funds bankroll lawsuits for a share of a share of the settlements. The result? Democratic sovereignty and democracy are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the decisions made by parliaments is that this provision has been incorporated – absent public approval, and typically amid conditions of profound opacity – inside bilateral investment treaties.

A Specific Example: The Whitehaven Coalmine

A year ago, activists secured a significant win at the high court. The judge found that proposals to excavate the first major coal mine in the UK for 30 years, in northwest England, were found to be unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have had zero effect on national carbon targets. The new government later cancelled the licence the former government had approved. Today, this success could be compromised by an offshore tribunal reporting to exclusively the corporations petitioning it.

In August, a corporate entity whose beneficial owners are located in the Cayman Islands lodged a claim against the UK government. Last week a dispute settlement body in the US capital was convened to adjudicate on it.

The company is suing the UK for the revenue it might have made if the mine had received permission to proceed. Citizens have little idea how much this might be. Who is representing it challenging the UK administration? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the national judiciary validates it, then a foreign company challenges it through an secretive offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Challenge

Concurrently that the panel on the coal mine dispute was established, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the sanctions the UK levied against him after the Russian aggression. He has previously initiated proceedings against Luxembourg for this reason, seeking $16bn: equivalent to half of nation's annual revenue. Included in the counsel acting for him in that case? Cherie Blair, wife of the ex-UK leader.

Trade specialists believe that the EU’s delay in using frozen state funds as security for its financial support package arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine critically depends on.

Empty Promises and Growing Risks

The public was told that such things wouldn’t happen. In 2014, a government leader, championing the largest and riskiest of all such treaties, declared: “The UK has signed trade deal after trade deal and we have never seen a issue in the past.” A consultant on this issue described activists of “alarmism … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about such legal actions. Predictions that “once firms begin to understand the influence bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction has come to pass. In the current period, energy and mining firms have lodged a unprecedented number of suits against nations rich and poor, challenging – similar to the Whitehaven project – government attempts to prevent climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded $84bn. That is equivalent to the combined GDP