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What is your perceive our political system operates? It could be along the lines of this. We elect MPs. They vote on bills. Should a majority is obtained, the bills become law. Legislation are enforced by the courts. Simple as that. Yet, that’s how it operated in the past. Those days are over.

The Advent of Shadow Arbitration Panels

Today, international firms, along with the oligarchs that control them, are able to litigate against governments for the policies they pass, at private courts composed of corporate lawyers. Such disputes take place away from public scrutiny. In contrast to domestic courts, these tribunals allow no right of appeal or oversight by judges. You or I cannot take a case to them, nor can our government, including enterprises based in this country. Access is granted exclusively to corporations operating from foreign soil.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it can award damages of vast sums, potentially billions.

These awards constitute not actual losses but funds the tribunal officials conclude the company could potentially have made. The government may have to rescind the measure. It will be hesitant to passing future laws in that area, for fear of being sued.

A Process Growing Exponentially

Record numbers of cases are being brought, as corporations observe each other, and investment funds fund legal actions in exchange for a share of the takings. The consequence? Democratic sovereignty and popular rule are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can override domestic law and the decisions taken by legislatures is that this provision has been written – absent public approval, and often in conditions of extreme secrecy – within trade treaties.

A Specific Instance: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the high court. The justice ruled that plans to dig the first new deep coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the former government had approved. Today, this victory is under threat by an foreign court accountable to only the companies petitioning it.

During August, a firm whose ultimate owners are based in the Cayman Islands filed a lawsuit challenging the UK government. Recently a tribunal in the United States was established to adjudicate on it.

The company is suing the UK for the revenue it could have earned if the mine had received permission to commence operations. We have no idea how much this might be. Which individual is acting on its behalf against the British government? An elected representative, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The administration passes a law, the national judiciary upholds it, then a international entity disputes it through an undemocratic private court, and a elected official works for its behalf.

A Sanctions Case

Concurrently that the panel on the coalmine case was established, we learned from a parliamentary answer that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are nothing of the case so far, but it appears probable that he may employ the ISDS mechanism to contest the sanctions the UK enacted against him subsequent to the invasion of Ukraine. He has already started suing Luxembourg on these grounds, demanding sixteen billion dollars: equivalent to half of government’s yearly budget. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the previous PM.

International law scholars believe that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over elected governments could be blocking the funds Ukraine urgently requires.

Empty Promises and Growing Costs

Politicians promised that these events could not occur. In 2014, a former prime minister, advocating for the largest and riskiest of all these agreements, declared: “The UK has signed investment treaty upon trade deal and we have never seen a problem in the past.” An expert on this matter accused critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “once firms grasp the authority they now possess, they will turn their attention from the weak nations to the strong ones” were met with scepticism.

That threat has now materialised. Recently, energy and extraction companies have lodged a historic level of claims against nations rich and poor, challenging – like the example of the Cumbrian coalmine – government attempts to stop global warming. Firms have so far won $114bn via ISDS, of which energy giants have secured $84bn. That is equivalent to the combined GDP