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Can you perceive our system of government works? Perhaps something like this. Citizens choose MPs. They vote on bills. If a majority is achieved, the bills become law. Statutes is maintained by the courts. End of story. Yet, that’s how it once functioned. Those days are over.

The Emergence of Shadow Arbitration Panels

Nowadays, foreign corporations, and the oligarchs that control them, can sue nation states for the regulations they pass, at secret arbitration panels made up of business advocates. The cases are held behind closed doors. In contrast to domestic courts, these tribunals allow no avenue for appeal or judicial review. You or I are unable to file a case to them, and neither can our government, or even companies operating from this country. Access is granted only to corporations operating from foreign soil.

If a tribunal rules that a legislative action may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions, running into billions.

These awards are based not on real financial harm but money the arbitrators determine the company could potentially have made. The administration might be compelled to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, due to the risk of being sued.

A Process Growing Exponentially

Historically high figures of disputes are being initiated, as corporations take cues from each other, and investment funds fund legal actions in return for a cut of the takings. The outcome? Democratic sovereignty and democratic governance are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to override a country's own laws and the decisions taken by legislatures is that this clause has been inserted – without democratic mandate, and typically amid conditions of total confidentiality – inside trade treaties.

A Specific Example: The Cumbrian Coalmine

A year ago, activists secured a significant win at the High Court. The presiding officer ruled that plans to excavate the first major coal mine in the UK for 30 years, in Cumbria, were illegally sanctioned by the Conservative government, which had endorsed the extraordinary assertion that the mine could have no impact on national carbon targets. The new government later cancelled the licence the previous administration had issued. Now, this legal outcome could be compromised by an secret arbitration panel accountable to exclusively the corporations bringing the case.

In August, a corporate entity whose beneficial owners reside in the Cayman Islands filed a lawsuit against the UK government. The previous week a tribunal in the US capital was set up to adjudicate on it.

The claimant is litigating against the UK for the money it could have earned if the mine had been permitted to go ahead. We have no clear indication how much this sum represents. Who is serving as its counsel challenging the state? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot the MP. The state enacts a policy, the national judiciary upholds it, then a international entity contests it through an unaccountable private court, and a elected official works for its behalf.

The Russian Case

Concurrently that the panel 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, Mikhail Fridman. The public knows little of the case at present, but it seems likely that he will utilise the tribunal to contest the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously initiated proceedings against a small nation for this reason, demanding a colossal sum: half that nation's yearly budget. Part of the lawyers representing him there? the wife of a former prime minister, spouse of the previous PM.

Legal experts believe that the EU’s hesitation in utilising seized Russian assets as security for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine urgently requires.

Empty Promises and Escalating Threats

We were assured that these events wouldn’t happen. Previously, a government leader, championing the biggest and most dangerous of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” A consultant on this matter described campaigners of “scaremongering … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries needed to fear ISDS claims. Warnings that “once firms begin to understand the influence bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were greeted by scepticism.

That warning is now a reality. Recently, energy and mining firms have initiated a record number of claims against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – state efforts to halt environmental catastrophe. Corporations have to date won $114bn through ISDS, of which oil majors have obtained $84bn. That represents the combined GDP