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How do you perceive our system of government functions? It could be something like this. We elect MPs. They vote on bills. If a majority is secured, the bills pass into law. The law are enforced by the courts. End of story. However, that used to be how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

In the modern era, international firms, or the wealthy individuals behind them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals composed of business advocates. Such disputes are held behind closed doors. In contrast to domestic courts, these tribunals allow no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even companies based in this country. Access is granted exclusively to businesses based overseas.

When a secret court rules that a law or policy might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These awards represent not real financial harm but money the tribunal officials conclude the company would perhaps have made. The state could be forced to drop the legislation. It becomes deterred from introducing similar legislation in that area, due to the risk of being sued.

A Mechanism Running Rampant

Record numbers of cases are being initiated, as companies observe each other, and hedge funds fund legal actions in return for a share of the awards. The result? Democratic sovereignty and democratic governance are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the choices taken by legislatures is that this stipulation has been incorporated – without public consent, and frequently under a climate of total confidentiality – into bilateral investment treaties.

A Specific Instance: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the High Court. The judge determined that plans to excavate the first new deep coal mine in the UK for a generation, in Cumbria, had been illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine could have no consequence on our carbon budgets. The new government then withdrew the permission the previous administration had approved. Currently, this legal outcome could be compromised by an offshore tribunal accountable to exclusively the entities bringing the case.

Last August, a firm whose ultimate owners are based in the Cayman Islands lodged a claim challenging the UK government. Last week a tribunal in Washington DC was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been permitted to commence operations. The public has no idea how much this sum represents. Which individual is serving as its counsel challenging the state? A member of parliament, and ex-law officer in the outgoing administration, the noted patriot Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a overseas corporation disputes it through an undemocratic arbitration panel, and a elected official represents its behalf.

A Sanctions Case

On the same day that the panel on the coal mine dispute was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case so far, but it is highly possible that he’ll use the arbitration process to challenge the sanctions the UK imposed on him after the Russian aggression. He has started suing another European state with similar intent, seeking $16bn: equivalent to half of state's annual revenue. Included in the legal team on his side? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s delay in leveraging immobilised state funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine desperately needs.

False Assurances and Escalating Costs

The public was told that such things were not possible. In 2014, a senior politician, promoting the largest and riskiest of all such treaties, declared: “We’ve signed trade deal after trade deal and there has not been a issue in the past.” A consultant on this issue labelled campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations needed to fear ISDS claims. Cautionary notes that “when companies grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with scepticism.

That warning is now a reality. Recently, fossil fuel and resource corporations have lodged a unprecedented number of suits against nations rich and poor, opposing – similar to the UK mine – official measures to prevent environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured the majority. That represents the combined GDP