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Can you perceive our system of government operates? Maybe similar to this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills pass into law. The law is maintained by the courts. That's it. However, that’s how it once functioned. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, overseas companies, along with the wealthy individuals that control them, can sue nation states for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. These proceedings are held away from public scrutiny. In contrast to domestic courts, these tribunals allow no right of appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, including businesses operating from this country. The door is open only to corporations registered abroad.

Should an arbitration panel determines that a legislative action could harm the corporation’s projected profits, it may order damages of vast sums, even billions.

These awards constitute not tangible damages but funds the tribunal officials conclude the company might otherwise have made. The state could be forced to abandon its policy. It will be hesitant to introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Record numbers of disputes are being initiated, as companies learn from each other, and hedge funds fund legal actions in return for a share of the awards. The outcome? Sovereignty and democratic governance are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the decisions taken by legislatures is that this provision has been inserted – without democratic mandate, and often in an atmosphere of extreme secrecy – within bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

Last year, environmental campaigners secured a significant win at the High Court. The presiding officer determined that schemes to excavate the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration later cancelled the consent the Tories had granted. Currently, this victory is under threat by an foreign court reporting to exclusively the corporations filing the suit.

In August, a corporate entity whose ultimate owners are based in the offshore financial centre lodged a claim challenging the UK government. The previous week a tribunal in the US capital was convened to hear it.

The claimant is litigating against the UK for the money it could have earned if the mine had received permission to commence operations. The public has little idea how much this might be. What legal team is acting on its behalf against the state? An elected representative, and ex-law officer in the Conservative government, that great patriot the MP. The government makes a decision, the high court supports it, then a foreign company contests it through an undemocratic private court, and a elected official acts on its behalf.

An Oligarch's Lawsuit

On the same day that the tribunal on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case so far, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK levied against him subsequent to the war in Ukraine. He has previously filed a claim against another European state on these grounds, claiming $16bn: half that state's yearly income. Part of the counsel on his side? a prominent lawyer, spouse of the former British prime minister.

Trade specialists believe that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states may be obstructing the funds Ukraine critically depends on.

Empty Promises and Escalating Threats

Politicians promised that these scenarios wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all such treaties, stated: “The UK has signed investment treaty upon trade deal and there has never been a problem in the past.” An adviser on this topic accused critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear such legal actions. Warnings that “when companies grasp the influence they’ve been granted, they will turn their attention from the poorer states to the wealthy nations” were dismissed with widespread derision.

That warning is now a reality. In the current period, fossil fuel and extraction companies have initiated a historic level of claims against nations rich and poor, challenging – as in the case of the Cumbrian coalmine – government attempts to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded eighty-four billion dollars. That represents the combined GDP