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How do you perceive our system of government operates? Maybe similar to this. Citizens choose MPs. They vote on bills. When a majority is achieved, the bills become law. The law is maintained by the courts. End of story. Yet, that was how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals that control them, can sue elected administrations for the policies they pass, at secret arbitration panels made up of corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these panels grant no avenue for appeal or judicial review. You or I are barred from bringing a case to them, and neither can our government, or even companies headquartered in this country. The door is open solely for businesses operating from foreign soil.

If a tribunal determines that a law or policy may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of vast sums, potentially billions.

These awards are based not on tangible damages but compensation the tribunal officials conclude the company could potentially have made. The state may have to drop the legislation. It will be deterred from passing future laws in that area, worried about being sued.

A System Running Rampant

Unprecedented levels of legal actions are being filed, as firms observe each other, and investment funds bankroll lawsuits for a share of a portion of the awards. The consequence? National sovereignty and democracy are turning into unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it can trump national legislation and the decisions enacted by legislatures is that this provision has been written – without public consent, and typically amid conditions of extreme secrecy – into international trade agreements.

A Concrete Example: The UK Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The presiding officer determined that plans to dig the first major coal mine in the UK for a generation, in Cumbria, were illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine would have no impact on national carbon targets. The Labour government then withdrew the licence the former government had issued. Today, this victory could be compromised by an secret arbitration panel answering to only the corporations bringing the case.

In August, a company whose final controllers are based in the Cayman Islands filed a lawsuit versus the UK government. Recently a arbitration panel in the United States was convened to hear it.

The company is suing the UK for the revenue it might have made if the mine had been permitted to commence operations. The public has no clear indication how much this could amount to. Which individual is serving as its counsel challenging the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The state passes a law, the high court validates it, then a international entity contests it through an secretive offshore tribunal, and a sitting MP represents its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coal mine dispute was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case to date, but it seems likely that he may employ the arbitration process to challenge the sanctions the UK enacted against him after the Russian aggression. He has already started suing Luxembourg on these grounds, claiming $16bn: equivalent to half of state's yearly budget. Among the counsel acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Legal experts argue that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its financial support package is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, unaccountable authority over elected governments might be preventing the funds Ukraine critically depends on.

False Assurances and Mounting Costs

The public was told that these events wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all investment pacts, stated: “The UK has signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this issue described activists of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative appeared to be that only poorer nations had to worry about ISDS claims. Warnings that “as corporations begin to understand the influence they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were met with general mockery.

That threat is now a reality. This year, fossil fuel and mining firms have initiated a unprecedented number of suits against nations both wealthy and developing, contesting – as in the case of the Whitehaven project – official measures to stop environmental catastrophe. Companies have thus far won vast sums by using ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP