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How do you reckon our political system functions? Perhaps similar to this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills pass into law. The law is upheld by the courts. Simple as that. However, that used to be how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

Nowadays, international firms, or the billionaires behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are conducted behind closed doors. Unlike our courts, these panels provide no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, just as our government, or even businesses operating from this country. They are open exclusively to businesses registered abroad.

Should an arbitration panel finds that a law or policy might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

This compensation represent not real financial harm but compensation the arbitrators conclude the company could potentially have made. The administration could be forced to rescind the measure. It will be deterred from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Record numbers of cases are being brought, as corporations observe each other, and private equity finance suits in return for a portion of the settlements. The result? Democratic sovereignty and popular rule are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices enacted by legislatures is that this stipulation has been written – without democratic mandate, and typically amid an atmosphere of extreme secrecy – inside trade treaties.

A Specific Example: The Whitehaven Coal Mine

Last year, activists won a great victory at the high court. The judge ruled that plans to open the first deep coalmine in the UK for three decades, in northwest England, had been unlawfully approved by the previous government, which had endorsed the questionable argument that the mine could have zero effect on our carbon budgets. The new government later cancelled the licence the Tories had issued. Now, this success is under threat by an offshore tribunal accountable to only the entities petitioning it.

Last August, a company whose final controllers are located in the Cayman Islands filed a lawsuit versus the UK government. Recently a tribunal in the United States was established to consider the case.

The company is suing the UK for the revenue it would have generated if the mine had been allowed to proceed. Citizens have no clear indication how much this could amount to. Which individual is acting on its behalf challenging the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the national judiciary supports it, then a international entity challenges it through an secretive arbitration panel, and a elected official acts on its behalf.

An Oligarch's Case

Concurrently that the panel on the coal mine dispute was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are nothing of the case at present, but it appears probable that he’ll use the arbitration process to contest the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has previously filed a claim against a small nation with similar intent, claiming a colossal sum: equivalent to half of government’s yearly budget. Among the counsel acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts argue that the EU’s delay in leveraging immobilised state funds as security for its loan to Ukraine arises from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over elected governments could be blocking the finance Ukraine critically depends on.

Empty Promises and Mounting Threats

We were assured that these scenarios could not occur. Years ago, a government leader, advocating for the most significant and hazardous of all investment pacts, stated: “Britain has agreed to trade deal after trade deal and there has not been a issue in the past.” An adviser on this topic accused critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries needed to fear such legal actions. Cautionary notes that “when companies start to realise the influence bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That prediction has now materialised. Recently, energy and resource corporations have filed a unprecedented number of cases against nations both wealthy and developing, challenging – as in the case of the UK mine – state efforts to stop environmental catastrophe. Companies have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP