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Can you perceive our system of government works? Perhaps something like this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills become law. Statutes is upheld by the courts. End of story. Well, that used to be how it once functioned. Not anymore.

The Advent of Shadow Arbitration Panels

Nowadays, international firms, or the billionaires behind them, have the power to sue governments for the regulations they pass, at private courts composed of commercial attorneys. The cases take place away from public scrutiny. Unlike our courts, these panels provide no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, just as our government, or even companies operating from this country. The door is open solely for entities operating from foreign soil.

Should an arbitration panel finds that a law or policy may compromise the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, running into billions.

These awards are based not on actual losses but money the tribunal officials decide the company might otherwise have made. The administration could be forced to rescind the measure. It is deterred from enacting future policies along the same lines, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Unprecedented levels of disputes are being initiated, as companies learn from each other, and investment funds bankroll lawsuits in exchange for a portion of the settlements. The consequence? Sovereignty and democracy are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the choices taken by parliaments is that this provision has been written – absent public approval, and typically amid an atmosphere of profound opacity – within trade treaties.

A Specific Case: The Whitehaven Coal Mine

A year ago, environmental campaigners won a great victory at the senior court. The justice ruled that plans to dig the first major coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the Conservative government, which had agreed to the bizarre claim that the mine would have had no impact on our carbon budgets. The new government later cancelled the licence the former government had issued. Now, this victory faces being overturned by an foreign court answering to no one but the entities petitioning it.

Last August, a company whose beneficial owners are based in the tax haven initiated proceedings challenging the UK government. Recently a tribunal in the United States was set up to hear it.

The company is litigating against the UK for the money it might have made if the mine had received permission to commence operations. Citizens have no idea how much this sum represents. What legal team is serving as its counsel in opposition to the state? A sitting MP, and previous senior legal advisor in the Conservative government, the noted patriot Geoffrey Cox. The state makes a decision, the domestic court supports it, then a international entity disputes it through an unaccountable offshore tribunal, and a member of our parliament works for its behalf.

The Russian Challenge

On the same day that the panel on the coalmine case was convened, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case so far, but it seems likely that he’ll use the tribunal to contest the restrictions the UK enacted against him after the war in Ukraine. He has initiated proceedings against a small nation for this reason, seeking a colossal sum: equivalent to half of government’s annual revenue. Part of the lawyers acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars contend that the EU’s delay in using frozen Russian assets as guarantee for its financial support package arises from Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over democratic administrations may be obstructing the money Ukraine critically depends on.

Empty Promises and Escalating Costs

Politicians promised that such things wouldn’t happen. In 2014, a former prime minister, championing the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade deal upon trade deal and we have never seen a issue in the past.” An adviser on this matter described critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states needed to fear these lawsuits. Predictions that “once firms start to realise the power they’ve been granted, they will shift their focus from the poorer states to the strong ones” were met with widespread derision.

That warning is now a reality. This year, energy and resource corporations have lodged a record number of claims against nations across the economic spectrum, challenging – like the example of the Cumbrian coalmine – state efforts to halt global warming. Corporations have so far won vast sums by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP