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How do you reckon our system of government operates? Perhaps similar to this. Citizens choose MPs. They legislate on bills. If a majority is secured, the bills pass into law. The law are enforced by the courts. End of story. Well, that used to be how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

In the modern era, overseas companies, or the wealthy individuals behind them, are able to litigate against nation states for the laws they pass, at private courts composed of business advocates. These proceedings are conducted behind closed doors. Unlike our courts, these bodies grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, and neither can our government, including companies headquartered in this country. The door is open only to entities operating from foreign soil.

When a secret court rules that a government measure could harm the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

This compensation are based not on tangible damages but money the arbitrators decide the company could potentially have made. The government may have to rescind the measure. It becomes deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of cases are being initiated, as firms observe each other, and hedge funds fund legal actions for a share of a portion of the awards. The result? Sovereignty and popular rule are becoming prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump national legislation and the rulings made by legislatures is that this provision has been inserted – absent public approval, and often in conditions of extreme secrecy – into bilateral investment treaties.

A Specific Case: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners won a great victory at the senior court. The judge determined that plans to open the first new deep coal mine in the UK for 30 years, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have zero effect on climate commitments. The Labour government later cancelled the consent the Tories had granted. Currently, this success faces being overturned by an offshore tribunal accountable to only the companies petitioning it.

In August, a company whose final controllers are based in the offshore financial centre lodged a claim against the UK government. Recently a dispute settlement body in the US capital was convened to adjudicate on it.

The company is suing the UK for the profits it would have generated if the mine had been permitted to go ahead. The public has little idea how much this might be. What legal team is representing it against the UK administration? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The government enacts a policy, the domestic court validates it, then a overseas corporation disputes it through an secretive private court, and a elected official represents its behalf.

The Russian Case

On the same day that the panel on the coal mine dispute was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case so far, but it appears probable that he may employ the tribunal to fight the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has already initiated proceedings against another European state with similar intent, demanding $16bn: half that state's annual revenue. Included in the lawyers acting for him in that case? a prominent lawyer, wife of the previous PM.

International law scholars argue that the EU’s delay in utilising seized oligarchs' funds as security for its aid for Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over elected governments may be obstructing the finance Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that such things could not occur. Previously, a senior politician, promoting the most significant and hazardous of all such treaties, stated: “The UK has signed trade deal after trade deal and there has never been a case in the past.” An expert on this topic labelled critics of “alarmism … the fact is, ISDS barely touches the UK much”. The overall message seemed to be that exclusively weaker states had to worry about such legal actions. Warnings that “once firms start to realise the power bestowed upon them, they will redirect their efforts from the poorer states to the strong ones” were met with widespread derision.

That prediction is now a reality. In the current period, oil and gas and resource corporations have filed a unprecedented number of suits against nations both wealthy and developing, opposing – like the example of the UK mine – state efforts to prevent global warming. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP