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How do you perceive our political system functions? Maybe similar to this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills become law. Legislation is maintained by the courts. That's it. However, that used to be how it once functioned. No longer.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, or the oligarchs who own them, have the power to sue elected administrations for the laws they pass, at secret arbitration panels staffed by business advocates. These proceedings are conducted behind closed doors. In contrast to domestic courts, these panels provide no right of appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even companies headquartered in this country. The door is open only to corporations based overseas.

When a secret court rules that a legislative action might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

This compensation constitute not real financial harm but compensation the tribunal officials conclude the company might otherwise have made. The government could be forced to drop the legislation. It will be deterred from enacting future policies of a similar nature, for fear of facing litigation.

A System Spiralling Out of Control

Historically high figures of disputes are being brought, as corporations take cues from each other, and hedge funds finance suits for a share of a share of the awards. The result? Democratic sovereignty and popular rule are now too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede national legislation and the decisions taken by legislatures is that this stipulation has been incorporated – absent public approval, and frequently under an atmosphere of total confidentiality – into trade treaties.

A Real-World Instance: The Cumbrian Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The justice ruled that schemes to dig the first deep coalmine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on climate commitments. The Labour government subsequently revoked the consent the Tories had issued. Today, this victory faces being overturned by an offshore tribunal answering to exclusively the entities bringing the case.

Last August, a company whose beneficial owners are located in the offshore financial centre lodged a claim versus the UK government. Last week a dispute settlement body in the US capital was convened to consider the case.

The claimant is suing the UK for the revenue it would have generated if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Which individual is serving as its counsel challenging the state? A sitting MP, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The state passes a law, the national judiciary validates it, then a international entity challenges it through an secretive private court, and a member of our parliament acts on its behalf.

The Russian Lawsuit

On the same day that the panel on the coalmine case was appointed, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it is highly possible that he’ll use the tribunal to challenge the penalties the UK enacted against him following the war in Ukraine. He has already filed a claim against Luxembourg on these grounds, claiming sixteen billion dollars: half that government’s yearly budget. Included in the counsel on his side? a prominent lawyer, married to the ex-UK leader.

Legal experts contend that the EU’s hesitation in using frozen Russian assets as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This extraordinary, secretive influence over sovereign states could be blocking the money Ukraine desperately needs.

Misleading Claims and Mounting Risks

The public was told that such things could not occur. Previously, a former prime minister, advocating for the largest and riskiest of all investment pacts, told us: “We’ve signed investment treaty upon trade deal and there has never been a issue in the past.” A consultant on this topic described campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations should be concerned by these lawsuits. Warnings that “once firms begin to understand the influence they’ve been granted, they will redirect their efforts from the weak nations to the strong ones” were met with general mockery.

That threat has come to pass. Recently, fossil fuel and mining firms have lodged a record number of suits against nations rich and poor, challenging – like the example of the UK mine – official measures to prevent environmental catastrophe. Firms have to date won vast sums via ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP