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Can you reckon our political system operates? Perhaps similar to this. We elect MPs. They vote on bills. If a majority is obtained, the bills become law. Legislation are enforced by the courts. That's it. Yet, that’s how it used to work. No longer.

The Advent of Shadow Arbitration Panels

In the modern era, overseas companies, and the billionaires behind them, have the power to sue governments for the regulations they pass, at offshore tribunals composed of commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these tribunals grant no opportunity to appeal or judicial review. You or I cannot take a case to them, nor can our government, including enterprises operating from this country. Access is granted only to entities operating from foreign soil.

Should an arbitration panel determines that a government measure might diminish the corporation’s projected profits, it can award damages of hundreds of millions, running into billions.

This compensation constitute not actual losses but funds the arbitrators conclude the company could potentially have made. The government may have to rescind the measure. It will be deterred from enacting future policies along the same lines, worried about facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of cases are being filed, as firms take cues from each other, and investment funds finance suits in return for a cut of the settlements. The consequence? Sovereignty and popular rule are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the choices taken by elected bodies is that this stipulation has been incorporated – absent public approval, and often in an atmosphere of total confidentiality – inside bilateral investment treaties.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the high court. The presiding officer determined that plans to open the first new deep coal mine in the UK for three decades, in northwest England, were unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no impact on climate commitments. The Labour government subsequently revoked the licence the Tories had granted. Now, this victory faces being overturned by an secret arbitration panel accountable to exclusively the companies filing the suit.

During August, a company whose beneficial owners are based in the Cayman Islands initiated proceedings versus the UK government. Recently a arbitration panel in the US capital was convened to hear it.

This firm is suing the UK for the profits it could have earned if the mine had received permission to proceed. The public has little idea how much this could amount to. What legal team is serving as its counsel in opposition to the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The administration makes a decision, the national judiciary upholds it, then a foreign company contests it through an unaccountable private court, and a sitting MP represents its behalf.

The Russian Case

Simultaneously that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know nothing of the case to date, but it seems likely that he may employ the arbitration process to challenge the restrictions the UK imposed on him after the invasion of Ukraine. He has filed a claim against Luxembourg on these grounds, seeking $16bn: equivalent to half of nation's yearly income. Part of the legal team on his side? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars contend that the EU’s delay in utilising seized state funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states may be obstructing the finance Ukraine urgently requires.

Misleading Claims and Mounting Risks

We were assured that these events were not possible. Previously, a senior politician, promoting the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” An adviser on this issue accused activists of “alarmism … the truth is, ISDS does not affect the UK much”. The overall message was crafted to be that exclusively weaker states had to worry about ISDS claims. Warnings that “once firms start to realise the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by scepticism.

That threat has now materialised. This year, oil and gas and mining firms have filed a unprecedented number of claims against nations rich and poor, contesting – as in the case of the UK mine – official measures to stop climate breakdown. Corporations have thus far won vast sums by using ISDS, of which oil majors have been awarded the majority. That represents the combined GDP