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Can you reckon our political system works? Maybe something like this. We elect MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. That's it. Yet, that’s how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Today, international firms, or the billionaires behind them, can sue elected administrations for the policies they pass, at private courts staffed by commercial attorneys. The cases are held away from public scrutiny. Unlike our courts, these bodies provide no right of appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even businesses based in this country. The door is open exclusively to corporations operating from foreign soil.

Should an arbitration panel rules that a government measure may compromise the corporation’s expected profits, it can award damages of hundreds of millions of pounds, potentially billions.

These awards represent not actual losses but funds the panel members determine the company might otherwise have made. The state could be forced to drop the legislation. It will be deterred from enacting future policies along the same lines, for fear of being sued.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as firms take cues from each other, and private equity bankroll lawsuits for a share of a cut of the awards. The consequence? Democratic sovereignty and democracy are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the decisions enacted by elected bodies is that this provision has been inserted – without public consent, and frequently under conditions of extreme secrecy – within bilateral investment treaties.

A Concrete Case: The Whitehaven Coalmine

A year ago, a conservation group won a great victory at the High Court. The judge ruled that plans to dig the first new deep coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine could have zero effect on national carbon targets. The Labour government then withdrew the permission the previous administration had granted. Currently, this success faces being overturned by an foreign court reporting to exclusively the corporations petitioning it.

During August, a corporate entity whose beneficial owners are based in the offshore financial centre initiated proceedings challenging the UK government. Recently a arbitration panel in Washington DC was established to hear it.

The company is litigating against the UK for the money it could have earned if the mine had received permission to proceed. The public has no clear indication how much this could amount to. Which individual is serving as its counsel challenging the UK administration? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The state passes a law, the domestic court validates it, then a international entity disputes it through an unaccountable private court, and a member of our parliament represents its behalf.

An Oligarch's Case

Concurrently that the panel on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are nothing of the case at present, but it is highly possible that he may employ the ISDS mechanism to challenge the restrictions the UK enacted against him following the war in Ukraine. He has already initiated proceedings against a small nation on these grounds, seeking sixteen billion dollars: half that government’s yearly income. Included in the legal team representing him there? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists contend that the EU’s procrastination in using frozen Russian assets as collateral for its aid for Ukraine arises from apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over democratic administrations could be blocking the finance Ukraine urgently requires.

Empty Promises and Mounting Risks

We were assured that these events could not occur. Previously, a senior politician, championing the largest and riskiest of all these agreements, stated: “We’ve signed investment treaty upon trade deal and there has not been a problem in the past.” A consultant on this matter described critics of “alarmism … in reality, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “once firms start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were greeted by widespread derision.

That prediction has now materialised. In the current period, energy and resource corporations have lodged a unprecedented number of cases against nations across the economic spectrum, contesting – like the example of the UK mine – official measures to prevent environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP