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What is your understand our system of government functions? It could be something like this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills become law. Statutes is maintained by the courts. Simple as that. Yet, that’s how it used to work. Not anymore.

The Emergence of Shadow Arbitration Panels

In the modern era, international firms, and the wealthy individuals who own them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of business advocates. The cases are conducted away from public scrutiny. In contrast to domestic courts, these panels provide no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, including companies based in this country. Access is granted only to corporations based overseas.

If a tribunal determines that a law or policy could harm the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

This compensation represent not tangible damages but compensation the tribunal officials determine the company would perhaps have made. The government may have to drop the legislation. It becomes hesitant to introducing similar legislation in that area, worried about facing litigation.

A Mechanism Growing Exponentially

Historically high figures of disputes are being initiated, as companies learn from each other, and investment funds fund legal actions for a share of a portion of the settlements. The consequence? Democratic sovereignty and democratic governance are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the rulings made by elected bodies is that this provision has been incorporated – absent public approval, and often in conditions of profound opacity – into trade treaties.

A Specific Instance: The Cumbrian Coalmine

Last year, activists secured a significant win at the High Court. The judge found that proposals to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the Conservative government, which had endorsed the bizarre claim that the mine could have no consequence on climate commitments. The new government then withdrew the licence the Tories had approved. Today, this legal outcome faces being overturned by an secret arbitration panel accountable to only the entities bringing the case.

In August, a firm whose final controllers are based in the tax haven initiated proceedings against the UK government. The previous week a dispute settlement body in the US capital was convened to consider the case.

This firm is litigating against the UK for the revenue it could have earned if the mine had been permitted to commence operations. The public has little idea how much this could amount to. What legal team is acting on its behalf in opposition to the UK administration? A member of parliament, and former attorney-general in the outgoing administration, the noted patriot the MP. The state passes a law, the high court validates it, then a international entity contests it through an unaccountable private court, and a sitting MP represents its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coalmine case was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are little of the case at present, but it appears probable that he will utilise the ISDS mechanism to contest the penalties the UK levied against him subsequent to the war in Ukraine. He has filed a claim against a small nation with similar intent, claiming a colossal sum: equivalent to half of nation's yearly income. Among the lawyers on his side? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars contend that the EU’s hesitation in leveraging immobilised Russian assets as security for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, undemocratic power over sovereign states may be obstructing the money Ukraine critically depends on.

Misleading Claims and Mounting Risks

We were assured that such things wouldn’t happen. In 2014, a government leader, promoting the largest and riskiest of all such treaties, stated: “We’ve signed investment treaty after trade deal and there has never been a issue in the past.” An adviser on this topic described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies begin to understand the authority they now possess, they will shift their focus from the poorer states to the strong ones” were met with scepticism.

That warning has now materialised. This year, fossil fuel and mining firms have filed a unprecedented number of cases against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Companies have to date won $114bn by using ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP