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What is your understand our system of government works? Perhaps similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills pass into law. Legislation is upheld by the courts. That's it. However, that was how it once functioned. Those days are over.

The Rise of Shadow Arbitration Panels

Nowadays, international firms, along with the oligarchs that control them, are able to litigate against governments for the laws they pass, at private courts made up of commercial attorneys. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these tribunals provide no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even enterprises based in this country. The door is open only to entities operating from foreign soil.

Should an arbitration panel determines that a legislative action might diminish the corporation’s expected profits, it can award damages of hundreds of millions, running into billions.

This compensation represent not real financial harm but funds the panel members determine the company might otherwise have made. The state might be compelled to abandon its policy. It will be discouraged from passing future laws of a similar nature, for fear of being sued.

A Mechanism Running Rampant

Historically high figures of cases are being initiated, as firms learn from each other, and hedge funds bankroll lawsuits in exchange for a share of the takings. The consequence? Democratic sovereignty and popular rule are now too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump a country's own laws and the rulings taken by parliaments is that this provision has been incorporated – without democratic mandate, and often in a climate of profound opacity – within trade treaties.

A Real-World Example: The UK Coal Mine

Last year, activists secured a significant win at the senior court. The judge found that schemes to excavate the first major coal mine in the UK for 30 years, in Cumbria, were wrongly permitted by the previous government, which had accepted the bizarre claim that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the licence the Tories had issued. Now, this success faces being overturned by an foreign court accountable to only the companies filing the suit.

During August, a corporate entity whose final controllers are based in the Cayman Islands initiated proceedings challenging the UK government. The previous week a arbitration panel in the United States was convened to adjudicate on it.

The company is litigating against the UK for the revenue it might have made if the mine had been permitted to go ahead. We have no clear indication how much this could amount to. What legal team is representing it challenging the UK administration? An elected representative, and ex-law officer in the Conservative government, the noted patriot the MP. The state enacts a policy, the national judiciary supports it, then a overseas corporation challenges it through an unaccountable private court, and a elected official acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the tribunal 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 Russian billionaire, a sanctioned individual. The public knows scarce of the case to date, but it is highly possible that he’ll use the ISDS mechanism to fight the penalties the UK enacted against him following the invasion of Ukraine. He has started suing Luxembourg for this reason, demanding $16bn: equivalent to half of nation's yearly income. Included in the counsel representing him there? a prominent lawyer, wife of the former British prime minister.

Legal experts believe that the EU’s hesitation in using frozen oligarchs' funds as collateral for its financial support package arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over democratic administrations might be preventing the funds Ukraine critically depends on.

False Assurances and Mounting Threats

Politicians promised that these scenarios could not occur. Years ago, a former prime minister, promoting the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and we have never seen a case in the past.” An adviser on this issue labelled critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The general impression appeared to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “once firms start to realise the influence bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That warning is now a reality. In the current period, energy and mining firms have initiated a unprecedented number of cases against nations both wealthy and developing, challenging – as in the case of the UK mine – government attempts to prevent global warming. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP