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How do you perceive our political system works? It could be similar to this. We elect MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. End of story. However, that’s how it operated in the past. No longer.

The Rise of Secret Arbitration Panels

Nowadays, overseas companies, or the billionaires who own them, have the power to sue elected administrations for the policies they pass, at offshore tribunals staffed by business advocates. Such disputes are conducted behind closed doors. Differing from national judiciaries, these bodies grant no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, or even enterprises operating from this country. They are open exclusively to corporations based overseas.

Should an arbitration panel finds that a legislative action could harm the corporation’s expected profits, it may order damages of vast sums, running into billions.

This compensation constitute not actual losses but funds the tribunal officials conclude the company would perhaps have made. The administration might be compelled to abandon its policy. It is deterred from introducing similar legislation in that area, for fear of incurring a lawsuit.

A System Spiralling Out of Control

Historically high figures of legal actions are being brought, as companies take cues from each other, and private equity bankroll lawsuits for a share of a cut of the settlements. The result? Democratic sovereignty and democratic governance are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices taken by parliaments is that this clause has been incorporated – without public consent, and frequently under a climate of profound opacity – within trade treaties.

A Specific Instance: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the senior court. The justice ruled that proposals to dig the first new deep coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have had no impact on our carbon budgets. The new government then withdrew the licence the previous administration had approved. Today, this legal outcome could be compromised by an foreign court answering to no one but the entities bringing the case.

Last August, a company whose final controllers are located in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in the US capital was convened to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to go ahead. Citizens have no idea how much this sum represents. What legal team is serving as its counsel against the British government? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration passes a law, the domestic court validates it, then a foreign company challenges it through an undemocratic offshore tribunal, and a elected official acts on its behalf.

The Russian Case

Concurrently that the tribunal on the coalmine case was established, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know scarce of the case at present, but it is highly possible that he will utilise the ISDS mechanism to fight the restrictions the UK levied against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against a small nation on these grounds, demanding sixteen billion dollars: an amount representing half government’s annual revenue. Among the lawyers acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

International law scholars contend that the EU’s procrastination in utilising seized Russian assets as security for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine desperately needs.

Misleading Claims and Escalating Risks

Politicians promised that these scenarios could not occur. In 2014, a former prime minister, championing the most significant and hazardous of all such treaties, told us: “The UK has signed investment treaty upon trade deal and there has never been a case in the past.” An expert on this issue accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states had to worry about such legal actions. Warnings that “as corporations start to realise the power they’ve been granted, they will redirect their efforts from the poorer states to the developed economies” were met with general mockery.

That threat has come to pass. This year, fossil fuel and resource corporations have initiated a historic level of cases against nations across the economic spectrum, challenging – similar to the Cumbrian coalmine – state efforts to halt environmental catastrophe. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP