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How do you perceive our system of government works? Maybe along the lines of this. The public votes for MPs. They legislate on bills. If a majority is obtained, the bills become law. Statutes is upheld by the courts. End of story. However, that was how it operated in the past. No longer.

The Emergence of Shadow Arbitration Panels

In the modern era, foreign corporations, or the billionaires behind them, are able to litigate against nation states for the policies they pass, at secret arbitration panels staffed by corporate lawyers. The cases are conducted in secret. In contrast to domestic courts, these panels provide 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 based in this country. They are open exclusively to entities operating from foreign soil.

Should an arbitration panel finds that a legislative action could harm the corporation’s projected profits, it may order compensation of vast sums, even billions.

These awards represent not real financial harm but money the panel members conclude the company could potentially have made. The administration could be forced to abandon its policy. It is deterred from passing future laws of a similar nature, worried about incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of disputes are being filed, as firms observe each other, and hedge funds finance suits in return for a portion of the takings. The result? Democratic sovereignty and democratic governance are becoming unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to supersede national legislation and the choices taken by legislatures is that this stipulation has been inserted – without public consent, and often in a climate of profound opacity – into bilateral investment treaties.

A Real-World Example: The UK Coalmine

Twelve months ago, activists achieved a major legal triumph at the senior court. The justice found that proposals to excavate the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have no impact on our carbon budgets. The incoming administration subsequently revoked the licence the previous administration had issued. Today, this victory faces being overturned by an offshore tribunal reporting to only the corporations filing the suit.

In August, a corporate entity whose ultimate owners reside in the tax haven initiated proceedings versus the UK government. Last week a arbitration panel in the US capital was set up to hear it.

The claimant is seeking compensation from the UK for the revenue it might have made if the mine had been allowed to proceed. The public has no idea how much this could amount to. Who is representing it in opposition to the UK administration? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot the MP. The administration passes a law, the high court validates it, then a foreign company disputes it through an secretive private court, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

On the same day that the court on the coal mine dispute was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows scarce of the case so far, but it seems likely that he’ll use the tribunal to contest the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has already started suing another European state with similar intent, seeking a colossal sum: half that nation's yearly income. Included in the lawyers on his side? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts argue that the EU’s procrastination in leveraging immobilised oligarchs' funds as security for its loan to Ukraine arises from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a investment pact. This unprecedented, undemocratic power over sovereign states may be obstructing the finance Ukraine critically depends on.

Empty Promises and Escalating Threats

Politicians promised that such things were not possible. In 2014, a senior politician, promoting the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” An expert on this matter described critics of “alarmism … the fact is, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by ISDS claims. Warnings that “once firms grasp the authority they’ve been granted, they will shift their focus from the poorer states to the strong ones” were greeted by widespread derision.

That warning has come to pass. Recently, energy and mining firms have lodged a unprecedented number of cases against nations across the economic spectrum, opposing – like the example of the Whitehaven project – government attempts to halt climate breakdown. Firms have thus far won $114bn via ISDS, of which energy giants have obtained $84bn. That represents the combined GDP