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What is your perceive our political system operates? Perhaps similar to this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills become law. Legislation are enforced by the courts. End of story. However, that used to be how it once functioned. Those days are over.

The Rise of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals behind them, have the power to sue elected administrations for the laws they pass, at private courts staffed by corporate lawyers. The cases are conducted behind closed doors. In contrast to domestic courts, these tribunals provide no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, including enterprises headquartered in this country. They are open solely for businesses based overseas.

Should an arbitration panel determines that a law or policy could harm the corporation’s projected profits, it has the power to grant damages of vast sums, even billions.

This compensation are based not on real financial harm but money the tribunal officials determine the company would perhaps have made. The administration could be forced to drop the legislation. It becomes hesitant to introducing similar legislation in that area, due to the risk of incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of legal actions are being initiated, as companies take cues from each other, and investment funds bankroll lawsuits for a share of a share of the awards. The consequence? Sovereignty and popular rule are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the decisions made by elected bodies is that this provision has been inserted – without public consent, and frequently under conditions of extreme secrecy – inside bilateral investment treaties.

A Concrete Example: The Cumbrian Coal Mine

Last year, environmental campaigners won a great victory at the high court. The judge determined that plans to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the previous government, which had accepted the questionable argument that the mine could have zero effect on our carbon budgets. The new government later cancelled the licence the Tories had approved. Now, this legal outcome is under threat by an foreign court answering to only the corporations bringing the case.

In August, a company whose beneficial owners are based in the Cayman Islands lodged a claim versus the UK government. The previous week a arbitration panel in the US capital was established to hear it.

The claimant is litigating against the UK for the money it might have made if the mine had received permission to commence operations. We have no idea how much this might be. Who is serving as its counsel against the state? An elected representative, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a foreign company contests it through an unaccountable private court, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the court on the mining lawsuit was appointed, we learned from a government response that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case at present, but it appears probable that he will utilise the arbitration process to contest the penalties the UK levied against him following the war in Ukraine. He has already started suing another European state for this reason, claiming a colossal sum: half that government’s yearly budget. Among the lawyers representing him there? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars argue that the EU’s hesitation in leveraging immobilised state funds as security for its loan to Ukraine stems from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, unaccountable authority over elected governments could be blocking the money Ukraine critically depends on.

Empty Promises and Growing Costs

We were assured that these scenarios were not possible. Years ago, a senior politician, promoting the most significant and hazardous of all such treaties, stated: “We’ve signed investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this matter described campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations had to worry about ISDS claims. Cautionary notes that “once firms start to realise the power they now possess, they will redirect their efforts from the poorer states to the developed economies” were met with widespread derision.

That prediction has come to pass. In the current period, fossil fuel and mining firms have initiated a historic level of cases against nations both wealthy and developing, contesting – like the example of the Whitehaven project – official measures to stop global warming. Companies have thus far won $114bn via ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP