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How do you perceive our system of government functions? It could be something like this. We elect MPs. They legislate on bills. If a majority is secured, the bills become law. The law is upheld by the courts. Simple as that. Well, that was how it used to work. Those days are over.

The Rise of Shadow Arbitration Panels

Today, international firms, and the wealthy individuals behind them, can sue nation states for the laws they pass, at private courts composed of corporate lawyers. The cases are conducted in secret. Differing from national judiciaries, these panels grant no right of appeal or legal review. The general public cannot take a case to them, just as our government, including enterprises based in this country. Access is granted only to corporations registered abroad.

If a tribunal rules that a legislative action might diminish the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, potentially billions.

These awards are based not on actual losses but money the panel members determine the company would perhaps have made. The administration might be compelled to abandon its policy. It becomes deterred from introducing similar legislation along the same lines, worried about being sued.

A Mechanism Running Rampant

Historically high figures of legal actions are being brought, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a share of the settlements. The consequence? Sovereignty and democracy are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the rulings enacted by elected bodies is that this stipulation has been incorporated – without public consent, and typically amid an atmosphere of total confidentiality – within international trade agreements.

A Specific Case: The Whitehaven Coalmine

Last year, a conservation group achieved a major legal triumph at the senior court. The judge ruled that proposals to dig the first major coal mine in the UK for a generation, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have had no consequence on climate commitments. The Labour government later cancelled the licence the Tories had issued. Currently, this legal outcome could be compromised by an secret arbitration panel answering to only the companies bringing the case.

During August, a company whose beneficial owners are located in the offshore financial centre lodged a claim against the UK government. Recently a tribunal in the US capital was convened to hear it.

The claimant is litigating against the UK for the revenue it might have made if the mine had been permitted to proceed. Citizens have little idea how much this sum represents. What legal team is representing it challenging the British government? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a international entity contests it through an secretive private court, and a member of our parliament acts on its behalf.

A Sanctions Case

On the same day that the court on the coal mine dispute was appointed, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows nothing of the case to date, but it seems likely that he’ll use the tribunal to contest the penalties the UK enacted against him following the Russian aggression. He has already filed a claim against Luxembourg on these grounds, seeking sixteen billion dollars: half that nation's yearly income. Included in the lawyers representing him there? a prominent lawyer, wife of the former British prime minister.

Legal experts argue that the EU’s hesitation in using frozen state funds as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over sovereign states may be obstructing the funds Ukraine critically depends on.

Empty Promises and Growing Costs

Politicians promised that these scenarios were not possible. Years ago, a senior politician, championing the most significant and hazardous of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” A consultant on this issue accused activists of “exaggeration … in reality, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies start to realise the influence they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were met with general mockery.

That threat is now a reality. Recently, oil and gas and resource corporations have filed a record number of suits against nations both wealthy and developing, challenging – as in the case of the UK mine – official measures to stop environmental catastrophe. Corporations have to date won vast sums by using ISDS, of which energy giants have obtained the majority. That equates to the combined GDP