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Can you understand our system of government works? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Statutes are enforced by the courts. End of story. Well, that was how it operated in the past. Not anymore.

The Advent of Shadow Arbitration Panels

Nowadays, international firms, and the wealthy individuals that control them, can sue elected administrations for the policies they pass, at private courts made up of corporate lawyers. Such disputes take place behind closed doors. Differing from national judiciaries, these panels allow no opportunity to appeal or legal review. The general public are unable to file a case to them, nor can our government, or even enterprises operating from this country. The door is open solely for entities operating from foreign soil.

When a secret court determines that a government measure might diminish the corporation’s expected profits, it can award compensation of vast sums, running into billions.

This compensation represent not tangible damages but compensation the panel members decide the company might otherwise have made. The administration could be forced to rescind the measure. It is hesitant to enacting future policies in that area, due to the risk of facing litigation.

A Process Spiralling Out of Control

Historically high figures of legal actions are being brought, as firms observe each other, and hedge funds bankroll lawsuits in exchange for a cut of the awards. The consequence? Sovereignty and democracy are becoming unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it can trump domestic law and the choices taken by legislatures is that this stipulation has been incorporated – absent public approval, and frequently under an atmosphere of extreme secrecy – into international trade agreements.

A Concrete Case: The Whitehaven Coalmine

A year ago, activists achieved a major legal triumph at the high court. The presiding officer ruled that proposals to dig the first new deep coal mine in the UK for three decades, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine could have zero effect on our carbon budgets. The incoming administration later cancelled the licence the former government had issued. Now, this victory is under threat by an foreign court accountable to no one but the entities filing the suit.

In August, a company whose ultimate owners are based in the offshore financial centre lodged a claim versus the UK government. Last week a arbitration panel in Washington DC was set up to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to proceed. We have no clear indication how much this might be. Who is acting on its behalf challenging the British government? An elected representative, and ex-law officer in the outgoing administration, that great patriot the MP. The government passes a law, the national judiciary validates it, then a foreign company challenges it through an undemocratic arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the mining lawsuit was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. Details are scarce of the case so far, but it seems likely that he will utilise the ISDS mechanism to fight the restrictions the UK imposed on him following the Russian aggression. He has started suing another European state on these grounds, demanding sixteen billion dollars: half that state's yearly income. Among the counsel representing him there? the wife of a former prime minister, wife of the previous PM.

Trade specialists contend that the EU’s delay in utilising seized state funds as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over elected governments could be blocking the funds Ukraine desperately needs.

False Assurances and Growing Risks

We were assured that these events could not occur. Years ago, a senior politician, advocating for the most significant and hazardous of all investment pacts, told us: “Britain has agreed to investment treaty after trade deal and we have never seen a issue in the past.” A consultant on this matter accused campaigners of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries needed to fear these lawsuits. Predictions that “when companies grasp the influence they’ve been granted, they will shift their focus from the weak nations to the wealthy nations” were met with scepticism.

That threat has come to pass. This year, fossil fuel and resource corporations have initiated a record number of claims against nations across the economic spectrum, opposing – like the example of the Cumbrian coalmine – state efforts to halt environmental catastrophe. Firms have to date won vast sums through ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP