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Can you reckon our system of government operates? It could be along the lines of this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. End of story. Yet, that’s how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Today, international firms, along with the oligarchs who own them, are able to litigate against elected administrations for the regulations they pass, at private courts composed of corporate lawyers. Such disputes take place behind closed doors. In contrast to domestic courts, these tribunals grant no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, and neither can our government, or even companies headquartered in this country. Access is granted only to corporations operating from foreign soil.

When a secret court determines that a legislative action might diminish the corporation’s projected profits, it may order damages of vast sums, even billions.

These sums are based not on real financial harm but money the arbitrators decide the company might otherwise have made. The government could be forced to drop the legislation. It is deterred from passing future laws in that area, for fear of being sued.

A Process Spiralling Out of Control

Historically high figures of disputes are being initiated, as firms learn from each other, and hedge funds finance suits for a share of a portion of the takings. The outcome? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the decisions made by parliaments is that this stipulation has been inserted – without democratic mandate, and often in an atmosphere of profound opacity – inside international trade agreements.

A Concrete Case: The UK Coal Mine

Twelve months ago, activists achieved a major legal triumph at the High Court. The presiding officer found that plans to dig the first new deep coal mine in the UK for three decades, in Cumbria, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have zero effect on national carbon targets. The new government then withdrew the licence the former government had approved. Currently, this success is under threat by an secret arbitration panel accountable to exclusively the entities petitioning it.

During August, a firm whose final controllers reside in the offshore financial centre filed a lawsuit versus the UK government. Last week a arbitration panel in Washington DC was convened to adjudicate on it.

This firm is litigating against the UK for the revenue it could have earned if the mine had been permitted to go ahead. Citizens have no clear indication how much this sum represents. Which individual is representing it in opposition to the British government? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot the MP. The government enacts a policy, the domestic court validates it, then a foreign company contests it through an unaccountable offshore tribunal, and a elected official represents its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case to date, but it is highly possible that he will utilise the ISDS mechanism to contest the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has initiated proceedings against another European state with similar intent, seeking a colossal sum: half that state's annual revenue. Included in the counsel acting for him in that case? a prominent lawyer, spouse of the ex-UK leader.

Legal experts believe that the EU’s procrastination in utilising seized Russian assets as security for its loan to Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over elected governments could be blocking the finance Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that such things were not possible. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed trade deal upon trade deal and we have never seen a issue in the past.” An expert on this topic accused activists of “alarmism … in reality, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by such legal actions. Predictions that “once firms begin to understand the power bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were met with general mockery.

That threat has come to pass. Recently, fossil fuel and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, opposing – like the example of the Cumbrian coalmine – official measures to prevent climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP