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How do you reckon our political system works? Perhaps similar to this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Statutes is upheld 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

Nowadays, overseas companies, or the oligarchs who own them, are able to litigate against elected administrations for the laws they pass, at offshore tribunals composed of commercial attorneys. Such disputes are held away from public scrutiny. In contrast to domestic courts, these tribunals allow no avenue for appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, or even businesses headquartered in this country. They are open solely for corporations operating from foreign soil.

Should an arbitration panel rules that a law or policy may compromise the corporation’s expected profits, it can award financial penalties of vast sums, potentially billions.

These sums constitute not tangible damages but funds the panel members determine the company might otherwise have made. The administration might be compelled to abandon its policy. It becomes discouraged from introducing similar legislation along the same lines, for fear of being sued.

A Process Spiralling Out of Control

Record numbers of cases are being filed, as firms observe each other, and investment funds finance suits in exchange for a portion of the awards. The consequence? Sovereignty and popular rule are becoming too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can override domestic law and the decisions made by legislatures is that this provision has been inserted – without democratic mandate, and typically amid a climate of profound opacity – within trade treaties.

A Real-World Instance: The Cumbrian Coal Mine

Last year, activists won a great victory at the high court. The justice ruled that proposals to open the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, had been unlawfully approved by the previous government, which had accepted the questionable argument that the mine would have no impact on our carbon budgets. The new government subsequently revoked the consent the former government had granted. Today, this success could be compromised by an secret arbitration panel reporting to only the companies bringing the case.

Last August, a company whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. Recently a dispute settlement body in the US capital was established to consider the case.

The claimant is suing the UK for the revenue it would have generated if the mine had been allowed to commence operations. The public has no clear indication how much this might be. Who is representing it challenging the state? A member of parliament, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The administration enacts a policy, the national judiciary validates it, then a foreign company challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Challenge

On the same day that the panel on the coalmine case was appointed, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. Details are little of the case to date, but it appears probable that he will utilise the ISDS mechanism to challenge the restrictions the UK levied against him subsequent to the war in Ukraine. He has initiated proceedings against Luxembourg on these grounds, demanding a colossal sum: half that nation's yearly budget. Included in the counsel acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

International law scholars contend that the EU’s hesitation in using frozen oligarchs' funds as collateral for its financial support package arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, secretive influence over sovereign states may be obstructing the money Ukraine critically depends on.

Misleading Claims and Growing Risks

We were assured that such things could not occur. In 2014, a former prime minister, advocating for the most significant and hazardous of all investment pacts, stated: “Britain has agreed to trade deal upon trade deal and there has never been a case in the past.” A consultant on this topic labelled activists of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations should be concerned by such legal actions. Predictions that “as corporations grasp the power bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were greeted by scepticism.

That prediction is now a reality. Recently, energy and extraction companies have lodged a historic level of cases against nations across the economic spectrum, contesting – similar to the UK mine – official measures to halt environmental catastrophe. Companies have so far won $114bn through ISDS, of which oil majors have secured $84bn. That represents the combined GDP