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How do you reckon our political system works? Perhaps along the lines of this. We elect MPs. They vote on bills. If a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. End of story. Yet, that used to be how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, international firms, along with the oligarchs behind them, have the power to sue nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. The cases take place away from public scrutiny. Differing from national judiciaries, these bodies grant no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. The door is open exclusively to businesses registered abroad.

If a tribunal finds that a government measure may compromise the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, even billions.

These awards constitute not actual losses but money the tribunal officials decide the company would perhaps have made. The government may have to drop the legislation. It will be discouraged from enacting future policies of a similar nature, for fear of facing litigation.

A Process Growing Exponentially

Historically high figures of disputes are being brought, as firms take cues from each other, and investment funds fund legal actions for a share of a share of the takings. The consequence? Sovereignty and popular rule are becoming too costly.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede a country's own laws and the decisions enacted by legislatures is that this stipulation has been incorporated – without democratic mandate, and often in an atmosphere of profound opacity – within trade treaties.

A Concrete Instance: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The presiding officer found that proposals to dig the first major coal mine in the UK for three decades, in northwest England, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had no impact on national carbon targets. The new government then withdrew the consent the former government had issued. Currently, this legal outcome is under threat by an foreign court accountable to exclusively the companies filing the suit.

In August, a firm whose ultimate owners reside in the Cayman Islands lodged a claim against the UK government. Recently a arbitration panel in the US capital was set up to adjudicate on it.

The company is suing the UK for the revenue it might have made if the mine had received permission to go ahead. We have no idea how much this sum represents. Who is serving as its counsel in opposition to the state? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary validates it, then a overseas corporation contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

The Russian Challenge

Simultaneously that the panel on the coal mine dispute was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it appears probable that he may employ the tribunal to contest the restrictions the UK imposed on him following the war in Ukraine. He has previously filed a claim against a small nation on these grounds, seeking $16bn: half that nation's yearly budget. Part of the lawyers representing him there? a prominent lawyer, wife of the previous PM.

International law scholars contend that the EU’s hesitation in utilising seized Russian assets as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states might be preventing the money Ukraine urgently requires.

False Assurances and Escalating Costs

The public was told that such things wouldn’t happen. Years ago, a government leader, promoting the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade deal after trade deal and we have never seen a problem in the past.” An adviser on this issue accused activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations should be concerned by such legal actions. Warnings that “as corporations begin to understand the power bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were met with scepticism.

That threat has come to pass. Recently, energy and extraction companies have lodged a unprecedented number of suits against nations rich and poor, challenging – like the example of the Whitehaven project – government attempts to prevent global warming. Corporations have thus far won $114bn by using ISDS, of which energy giants have obtained $84bn. That represents the combined GDP