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How do you understand our political system functions? Perhaps something like this. We elect MPs. They vote on bills. When a majority is secured, the bills pass into law. The law is maintained by the courts. End of story. However, that’s how it operated in the past. Those days are over.

The Emergence of Shadow Arbitration Panels

Nowadays, overseas companies, and the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at offshore tribunals composed of corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these tribunals grant no right of appeal or legal review. You or I are unable to file a case to them, nor can our government, or even enterprises based in this country. The door is open solely for corporations registered abroad.

If a tribunal determines that a government measure might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, even billions.

These sums represent not tangible damages but money the panel members determine the company could potentially have made. The government might be compelled to abandon its policy. It will be deterred from passing future laws of a similar nature, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of disputes are being initiated, as firms learn from each other, and hedge funds fund legal actions in return for a share of the takings. The result? Democratic sovereignty and popular rule are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the decisions taken by elected bodies is that this clause has been written – without democratic mandate, and typically amid an atmosphere of profound opacity – within international trade agreements.

A Concrete Instance: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the High Court. The presiding officer ruled that proposals to open the first deep coalmine in the UK for a generation, in Cumbria, had been unlawfully approved by the previous government, which had accepted the bizarre claim that the mine would have zero effect on our carbon budgets. The Labour government later cancelled the consent the former government had issued. Today, this legal outcome faces being overturned by an secret arbitration panel reporting to exclusively the companies bringing the case.

In August, a firm whose ultimate owners reside in the tax haven initiated proceedings versus the UK government. Last week a tribunal in the United States was convened to consider the case.

The company is litigating against the UK for the revenue it could have earned if the mine had been allowed to go ahead. We have little idea how much this might be. What legal team is serving as its counsel challenging the British government? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the national judiciary upholds it, then a international entity disputes it through an secretive offshore tribunal, and a elected official represents its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the mining lawsuit was appointed, 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 nothing of the case to date, but it seems likely that he may employ the arbitration process to challenge the penalties the UK enacted against him following the war in Ukraine. He has initiated proceedings against a small nation with similar intent, claiming $16bn: equivalent to half of state's annual revenue. Part of the lawyers acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars believe that the EU’s delay in leveraging immobilised Russian assets as security for its loan to Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments could be blocking the finance Ukraine desperately needs.

Empty Promises and Escalating Threats

The public was told that such things wouldn’t happen. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An adviser on this matter described campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that exclusively weaker states should be concerned by such legal actions. Predictions that “as corporations grasp the power they now possess, they will shift their focus from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That threat is now a reality. This year, oil and gas and extraction companies have filed a record number of suits against nations across the economic spectrum, contesting – like the example of the UK mine – government attempts to halt climate breakdown. Corporations have so far won $114bn through ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP