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What is your reckon our political system operates? Perhaps similar to this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills pass into law. Legislation is maintained by the courts. Simple as that. Yet, that was how it used to work. Not anymore.

The Rise of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals behind them, are able to litigate against elected administrations for the policies they pass, at private courts made up of corporate lawyers. The cases take place behind closed doors. Differing from national judiciaries, these tribunals allow no avenue for appeal or judicial review. Ordinary citizens cannot take a case to them, and neither can our government, or even businesses headquartered in this country. Access is granted solely for corporations based overseas.

Should an arbitration panel rules that a government measure might diminish the corporation’s expected profits, it has the power to grant financial penalties of vast sums, potentially billions.

These awards are based not on actual losses but funds the arbitrators determine the company could potentially have made. The administration might be compelled to abandon its policy. It is hesitant to enacting future policies in that area, due to the risk of being sued.

A Process Running Rampant

Historically high figures of disputes are being brought, as corporations learn from each other, and investment funds fund legal actions in exchange for a share of the takings. The result? Sovereignty and democratic governance are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can override national legislation and the rulings taken by elected bodies is that this provision has been inserted – absent public approval, and typically amid an atmosphere of profound opacity – inside bilateral investment treaties.

A Concrete Case: The Whitehaven Coalmine

Twelve months ago, activists secured a significant win 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 unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine would have no consequence on climate commitments. The new government subsequently revoked the licence the Tories had granted. Currently, this legal outcome could be compromised by an foreign court answering to only the entities petitioning it.

During August, a firm whose final controllers reside in the Cayman Islands initiated proceedings against the UK government. Recently a arbitration panel in the United States was set up to consider the case.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been allowed to proceed. We have little idea how much this might be. Who is representing it in opposition to the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot Geoffrey Cox. The government enacts a policy, the high court upholds it, then a international entity challenges it through an secretive private court, and a sitting MP works for its behalf.

The Russian Case

Concurrently that the court on the coal mine dispute was established, we learned from a government response that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know little of the case to date, but it seems likely that he will utilise the ISDS mechanism to fight the restrictions the UK levied against him subsequent to the war in Ukraine. He has previously filed a claim against Luxembourg with similar intent, demanding sixteen billion dollars: an amount representing half state's yearly income. Included in the counsel on his side? Cherie Blair, wife of the former British prime minister.

International law scholars believe that the EU’s procrastination in utilising seized state funds as guarantee for its financial support package is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

False Assurances and Growing Costs

We were assured that these events could not occur. In 2014, a senior politician, advocating for the biggest and most dangerous of all these agreements, stated: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” An adviser on this issue accused campaigners of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Warnings that “when companies grasp the influence they now possess, they will redirect their efforts from the poorer states to the developed economies” were dismissed with scepticism.

That warning is now a reality. Recently, oil and gas and extraction companies have initiated a unprecedented number of claims against nations both wealthy and developing, contesting – similar to the UK mine – state efforts to halt environmental catastrophe. Firms have thus far won $114bn via ISDS, of which fossil fuel companies have secured $84bn. That represents the combined GDP