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What is your understand our political system works? Perhaps something like this. We elect MPs. They vote on bills. When a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. However, that used to be how it operated in the past. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, overseas companies, or the wealthy individuals who own them, have the power to sue governments for the laws they pass, at private courts made up of business advocates. Such disputes are held behind closed doors. In contrast to domestic courts, these panels allow no opportunity to appeal or judicial review. You or I cannot take a case to them, nor can our government, or even companies operating from this country. They are open only to corporations based overseas.

Should an arbitration panel determines that a government measure might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions, running into billions.

This compensation represent not real financial harm but compensation the tribunal officials decide the company could potentially have made. The government may have to rescind the measure. It becomes deterred from enacting future policies along the same lines, worried about incurring a lawsuit.

A Process Running Rampant

Unprecedented levels of cases are being initiated, as companies learn from each other, and hedge funds finance suits in exchange for a portion of the settlements. The outcome? National sovereignty and popular rule are becoming too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the decisions made by parliaments is that this clause has been inserted – absent public approval, and frequently under a climate of total confidentiality – into trade treaties.

A Real-World Instance: The UK Coalmine

A year ago, activists achieved a major legal triumph at the high court. The presiding officer found that proposals to open the first new deep coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the previous government, which had accepted the extraordinary assertion that the mine would have zero effect on climate commitments. The Labour government then withdrew the consent the previous administration had issued. Currently, this success faces being overturned by an offshore tribunal reporting to exclusively the entities bringing the case.

Last August, a firm whose final controllers reside in the offshore financial centre filed a lawsuit challenging the UK government. Last week a arbitration panel in the United States was established to adjudicate on it.

The company is litigating against the UK for the money it would have generated if the mine had received permission to proceed. The public has no idea how much this sum represents. What legal team is acting on its behalf in opposition to the state? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government enacts a policy, 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 Case

On the same day that the court on the mining lawsuit was convened, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are scarce of the case so far, but it is highly possible that he may employ the arbitration process to fight the sanctions the UK imposed on him following the war in Ukraine. He has already initiated proceedings against another European state on these grounds, demanding a colossal sum: equivalent to half of state's annual revenue. Part of the lawyers on his side? the wife of a former prime minister, wife of the previous PM.

Trade specialists believe that the EU’s delay in utilising seized oligarchs' funds as guarantee for its loan to Ukraine is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over sovereign states might be preventing the funds Ukraine desperately needs.

Misleading Claims and Mounting Risks

Politicians promised that these events could not occur. In 2014, a government leader, promoting the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade deal after trade deal and there has never been a problem in the past.” A consultant on this issue labelled activists of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear these lawsuits. Predictions that “as corporations grasp the influence they now possess, they will shift their focus from the vulnerable countries to the developed economies” were dismissed with general mockery.

That prediction is now a reality. In the current period, oil and gas and extraction companies have lodged a unprecedented number of cases against nations both wealthy and developing, contesting – like the example of the Whitehaven project – state efforts to prevent environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which oil majors have been awarded $84bn. That is equivalent to the combined GDP