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What is your perceive our system of government functions? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills pass into law. The law are enforced by the courts. End of story. Well, that was how it once functioned. Those days are over.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, or the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at secret arbitration panels composed of business advocates. The cases are conducted behind closed doors. In contrast to domestic courts, these bodies allow no right of appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, including companies operating from this country. The door is open solely for businesses operating from foreign soil.

If a tribunal determines that a legislative action could harm the corporation’s expected profits, it has the power to grant damages of hundreds of millions, potentially billions.

This compensation are based not on real financial harm but compensation the panel members determine the company might otherwise have made. The state could be forced to rescind the measure. It becomes discouraged from passing future laws along the same lines, worried about facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of legal actions are being initiated, as firms observe each other, and private equity finance suits for a share of a cut of the takings. The consequence? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override domestic law and the decisions taken by parliaments is that this clause has been incorporated – without democratic mandate, and often in a climate of total confidentiality – inside trade treaties.

A Real-World Case: The Cumbrian Coalmine

Last year, environmental campaigners secured a significant win at the senior court. The judge found that plans to dig the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the extraordinary assertion that the mine would have no impact on climate commitments. The incoming administration later cancelled the consent the former government had granted. Today, this legal outcome faces being overturned by an offshore tribunal reporting to no one but the entities filing the suit.

During August, a company whose ultimate owners reside in the Cayman Islands lodged a claim challenging the UK government. Last week a arbitration panel in the US capital was established to consider the case.

The company is litigating against the UK for the money it might have made if the mine had received permission to go ahead. Citizens have no idea how much this sum represents. What legal team is representing it in opposition to the state? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The administration enacts a policy, the high court validates it, then a foreign company disputes it through an secretive arbitration panel, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the panel on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case at present, but it appears probable that he may employ the ISDS mechanism to challenge the penalties the UK levied against him after the invasion of Ukraine. He has already filed a claim against a small nation for this reason, demanding $16bn: half that state's annual revenue. Among the lawyers on his side? the wife of a former prime minister, wife of the previous PM.

Legal experts argue that the EU’s hesitation in utilising seized Russian assets as collateral for its aid for Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over elected governments might be preventing the money Ukraine critically depends on.

False Assurances and Growing Costs

We were assured that these events wouldn’t happen. In 2014, a senior politician, championing the largest and riskiest of all such treaties, stated: “The UK has signed trade agreement after trade deal and there has never been a problem in the past.” A consultant on this topic labelled activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations should be concerned by ISDS claims. Predictions that “as corporations start to realise the influence they now possess, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That warning has now materialised. In the current period, oil and gas and extraction companies have initiated a record number of suits against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – official measures to stop climate breakdown. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which energy giants have secured the majority. That is equivalent to the combined GDP