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What is your understand our political system works? Maybe similar to this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. The law are enforced by the courts. That's it. Yet, that used to be how it used to work. Not anymore.

The Rise of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at private courts made up of business advocates. Such disputes take place behind closed doors. Differing from national judiciaries, these bodies grant no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, just as our government, including enterprises based in this country. They are open only to entities registered abroad.

Should an arbitration panel rules that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

These awards constitute not actual losses but funds the panel members decide the company might otherwise have made. The state could be forced to rescind the measure. It will be deterred from passing future laws in that area, worried about being sued.

A Process Growing Exponentially

Unprecedented levels of legal actions are being initiated, as companies observe each other, and private equity bankroll lawsuits for a share of a portion of the takings. The consequence? Sovereignty and democracy are turning into prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the rulings enacted by legislatures is that this provision has been written – without democratic mandate, and often in an atmosphere of total confidentiality – inside international trade agreements.

A Concrete Instance: The Cumbrian Coalmine

Twelve months ago, activists secured a significant win at the High Court. The presiding officer ruled that plans to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were wrongly permitted by the Conservative government, which had agreed to the bizarre claim that the mine would have no impact on climate commitments. The new government then withdrew the permission the Tories had granted. Now, this success faces being overturned by an offshore tribunal reporting to only the entities bringing the case.

In August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings against the UK government. Recently a tribunal in the United States was established to consider the case.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. What legal team is representing it challenging the British government? An elected representative, and previous senior legal advisor in the previous government, the noted patriot the MP. The administration passes a law, the domestic court upholds it, then a overseas corporation challenges it through an undemocratic private court, and a sitting MP acts on its behalf.

A Sanctions Lawsuit

Simultaneously that the court on the mining lawsuit was established, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know little of the case at present, but it appears probable that he will utilise the tribunal to contest the penalties the UK imposed on him following the Russian aggression. He has previously started suing another European state with similar intent, demanding a colossal sum: equivalent to half of state's annual revenue. Included in the legal team representing him there? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars believe that the EU’s procrastination in utilising seized state funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over sovereign states could be blocking the finance Ukraine urgently requires.

Empty Promises and Mounting Threats

Politicians promised that such things could not occur. Years ago, a former prime minister, promoting the most significant and hazardous of all such treaties, stated: “The UK has signed investment treaty after trade deal and there has not been a case in the past.” An adviser on this issue described campaigners of “alarmism … in reality, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states had to worry about such legal actions. Predictions that “when companies start to realise the influence bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were greeted by scepticism.

That warning is now a reality. This year, oil and gas and extraction companies have initiated a record number of claims against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – state efforts to stop global warming. Corporations have thus far won $114bn by using ISDS, of which energy giants have obtained eighty-four billion dollars. That equates to the combined GDP