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How do you reckon our political system operates? Perhaps along the lines of this. The public votes for MPs. They vote on bills. If a majority is achieved, the bills pass into law. Statutes are enforced by the courts. That's it. Yet, that used to be how it once functioned. Not anymore.

The Advent of Shadow Arbitration Panels

Nowadays, foreign corporations, or the billionaires who own them, can sue elected administrations for the laws they pass, at private courts made up of commercial attorneys. The cases take place in secret. Unlike our courts, these bodies provide no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, including enterprises headquartered in this country. Access is granted solely for entities based overseas.

When a secret court determines that a government measure could harm the corporation’s projected profits, it may order damages of hundreds of millions, running into billions.

These awards represent not real financial harm but funds the tribunal officials conclude the company might otherwise have made. The government might be compelled to drop the legislation. It becomes discouraged from enacting future policies in that area, for fear of being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being filed, as companies learn from each other, and private equity finance suits for a share of a portion of the settlements. The consequence? National sovereignty and democratic governance are now too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the choices taken by elected bodies is that this clause has been written – without public consent, and often in a climate of total confidentiality – within bilateral investment treaties.

A Specific Instance: The Whitehaven Coal Mine

Last year, environmental campaigners won a great victory at the high court. The judge ruled that proposals to excavate the first deep coalmine in the UK for a generation, in Cumbria, had been illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have no consequence on our carbon budgets. The new government then withdrew the licence the former government had granted. Now, this legal outcome faces being overturned by an offshore tribunal accountable to exclusively the companies petitioning it.

In August, a corporate entity whose final controllers reside in the offshore financial centre filed a lawsuit against the UK government. Recently a arbitration panel in the US capital was established to adjudicate on it.

This firm is litigating against the UK for the profits it could have earned if the mine had received permission to go ahead. Citizens have no clear indication how much this sum represents. Who is serving as its counsel in opposition to the state? An elected representative, and previous senior legal advisor in the previous government, the noted patriot Geoffrey Cox. The state enacts a policy, the national judiciary validates it, then a foreign company contests it through an undemocratic private court, and a sitting MP represents its behalf.

An Oligarch's Lawsuit

Concurrently that the tribunal on the coalmine case was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case so far, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK imposed on him following the war in Ukraine. He has initiated proceedings against another European state with similar intent, seeking a colossal sum: half that state's yearly budget. Included in the legal team acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Legal experts contend that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its loan to Ukraine arises from Belgium’s fear that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

Empty Promises and Escalating Threats

Politicians promised that such things were not possible. In 2014, a senior politician, advocating for the most significant and hazardous of all such treaties, declared: “Britain has agreed to investment treaty after trade deal and there has never been a case in the past.” A consultant on this topic described critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations needed to fear ISDS claims. Predictions that “once firms begin to understand the power bestowed upon them, they will shift their focus from the vulnerable countries to the developed economies” were greeted by widespread derision.

That warning is now a reality. Recently, oil and gas and extraction companies have lodged a record number of suits against nations rich and poor, opposing – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP