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How do you perceive our political system functions? Perhaps something like this. Citizens choose MPs. They debate and pass bills. Should a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. That's it. Yet, that used to be how it used to work. Those days are over.

The Advent of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals who own them, are able to litigate against governments for the regulations they pass, at private courts staffed by corporate lawyers. Such disputes are held behind closed doors. In contrast to domestic courts, these bodies provide no avenue for appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even businesses based in this country. The door is open solely for entities based overseas.

When a secret court rules that a government measure may compromise the corporation’s expected profits, it may order financial penalties of hundreds of millions, running into billions.

This compensation represent not tangible damages but funds the tribunal officials determine the company might otherwise have made. The state could be forced to drop the legislation. It will be hesitant to introducing similar legislation in that area, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being filed, as firms learn from each other, and investment funds finance suits in return for a share of the awards. The outcome? Sovereignty and democratic governance are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede domestic law and the choices enacted by legislatures is that this provision has been inserted – without democratic mandate, and typically amid a climate of profound opacity – inside international trade agreements.

A Specific Case: The UK Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the high court. The justice found that schemes to dig the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no impact on climate commitments. The new government later cancelled the consent the previous administration had issued. Currently, this victory could be compromised by an foreign court answering to exclusively the entities filing the suit.

During August, a company whose beneficial owners are based in the offshore financial centre initiated proceedings against the UK government. The previous week a arbitration panel in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to proceed. The public has no idea how much this could amount to. Who is representing it in opposition to the UK administration? A member of parliament, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government makes a decision, the domestic court upholds it, then a foreign company disputes it through an undemocratic offshore tribunal, and a sitting MP acts on its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coalmine case was appointed, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case so far, but it is highly possible that he may employ the tribunal to contest the sanctions the UK levied against him after the war in Ukraine. He has already filed a claim against another European state on these grounds, seeking a colossal sum: an amount representing half government’s annual revenue. Among the lawyers on his side? the wife of a former prime minister, spouse of the ex-UK leader.

International law scholars contend that the EU’s procrastination in utilising seized state funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over sovereign states might be preventing the finance Ukraine critically depends on.

False Assurances and Escalating Costs

The public was told that these scenarios were not possible. Previously, a government leader, championing the most significant and hazardous of all such treaties, declared: “The UK has signed trade agreement upon trade deal and there has never been a issue in the past.” An adviser on this issue described activists of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about such legal actions. Cautionary notes that “as corporations grasp the influence they now possess, they will redirect their efforts from the weak nations to the strong ones” were greeted by widespread derision.

That prediction has now materialised. Recently, fossil fuel and resource corporations have initiated a record number of cases against nations rich and poor, contesting – as in the case of the Cumbrian coalmine – state efforts to halt global warming. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP