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How do you understand our political system functions? It could be similar to this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills pass into law. Statutes are enforced by the courts. Simple as that. Well, that was how it used to work. No longer.

The Emergence of Shadow Arbitration Panels

Today, foreign corporations, along with the wealthy individuals that control them, have the power to sue nation states for the policies they pass, at private courts composed of commercial attorneys. Such disputes are held in secret. Differing from national judiciaries, these panels grant no avenue for appeal or judicial review. You or I are unable to file a case to them, nor can our government, or even businesses headquartered in this country. The door is open solely for businesses operating from foreign soil.

Should an arbitration panel rules that a government measure could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions, potentially billions.

These sums represent not real financial harm but funds the arbitrators decide the company might otherwise have made. The government might be compelled to rescind the measure. It will be hesitant to enacting future policies along the same lines, worried about being sued.

A Mechanism Growing Exponentially

Record numbers of cases are being brought, as companies learn from each other, and hedge funds fund legal actions in exchange for a share of the settlements. The result? Democratic sovereignty and democratic governance are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the rulings enacted by parliaments is that this clause has been inserted – without public consent, and often in a climate of total confidentiality – into trade treaties.

A Real-World Instance: The Whitehaven Coalmine

Last year, a conservation group achieved a major legal triumph at the high court. The justice ruled that plans to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no consequence on climate commitments. The Labour government then withdrew the permission the previous administration had granted. Now, this victory faces being overturned by an offshore tribunal accountable to only the companies petitioning it.

Last August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim versus the UK government. The previous week a tribunal in Washington DC was established to consider the case.

This firm is suing the UK for the money it might have made if the mine had received permission to commence operations. Citizens have no idea how much this could amount to. Who is acting on its behalf in opposition to the British government? A member of parliament, and ex-law officer in the Conservative government, that great patriot Geoffrey Cox. The government passes a law, the national judiciary validates it, then a foreign company challenges it through an unaccountable private court, and a elected official works for its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case so far, but it seems likely that he may employ the ISDS mechanism to contest the restrictions the UK levied against him subsequent to the Russian aggression. He has started suing Luxembourg on these grounds, seeking a colossal sum: equivalent to half of state's annual revenue. Part of the legal team on his side? Cherie Blair, spouse of the former British prime minister.

Legal experts argue that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package arises from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Escalating Costs

We were assured that such things wouldn’t happen. In 2014, a senior politician, championing the biggest and most dangerous of all investment pacts, stated: “The UK has signed investment treaty upon trade deal and there has not been a problem in the past.” An expert on this topic described critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “when companies begin to understand the authority they now possess, they will redirect their efforts from the weak nations to the strong ones” were met with widespread derision.

That prediction is now a reality. Recently, oil and gas and mining firms have initiated a record number of cases against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – government attempts to prevent environmental catastrophe. Firms have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have secured $84bn. That represents the combined GDP