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How do you understand our political system operates? Maybe similar to this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Statutes are enforced by the courts. Simple as that. Well, that was how it used to work. No longer.

The Advent of Secret Arbitration Panels

Nowadays, overseas companies, and the billionaires who own them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals staffed by corporate lawyers. These proceedings are conducted behind closed doors. Differing from national judiciaries, these tribunals allow no right of appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, including enterprises based in this country. The door is open solely for businesses based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s anticipated profits, it may order compensation of hundreds of millions of pounds, running into billions.

These sums represent not tangible damages but compensation the panel members determine the company could potentially have made. The state might be compelled to drop the legislation. It becomes hesitant to introducing similar legislation along the same lines, for fear of being sued.

A System Spiralling Out of Control

Record numbers of cases are being brought, as corporations observe each other, and investment funds bankroll lawsuits in return for a cut of the takings. The consequence? Sovereignty and democracy are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the decisions made by parliaments is that this stipulation has been incorporated – without democratic mandate, and typically amid a climate of extreme secrecy – into trade treaties.

A Specific Example: The Whitehaven Coalmine

Last year, activists achieved a major legal triumph at the High Court. The judge found that schemes to dig the first major coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The incoming administration subsequently revoked the permission the Tories had approved. Now, this legal outcome could be compromised by an foreign court answering to only the entities bringing the case.

During August, a firm whose final controllers reside in the tax haven initiated proceedings against the UK government. Recently a arbitration panel in the United States was established to adjudicate on it.

The claimant is litigating against the UK for the revenue it could have earned if the mine had been allowed to proceed. We have no idea how much this sum represents. What legal team is representing it challenging the state? A member of parliament, and ex-law officer in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a foreign company disputes it through an undemocratic offshore tribunal, and a elected official represents its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the restrictions the UK imposed on him following the invasion of Ukraine. He has already initiated proceedings against another European state for this reason, seeking $16bn: half that government’s yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, spouse of the previous PM.

International law scholars contend that the EU’s procrastination in using frozen Russian assets as security for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Costs

We were assured that these events could not occur. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this issue described campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states needed to fear ISDS claims. Cautionary notes that “when companies start to realise the power they now possess, they will shift their focus from the weak nations to the developed economies” were greeted by widespread derision.

That threat has come to pass. This year, energy and extraction companies have initiated a unprecedented number of suits against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to stop climate breakdown. Companies have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded the majority. That represents the combined GDP