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How do you perceive our system of government works? Maybe similar to this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills become law. Statutes is maintained by the courts. Simple as that. Well, that used to be how it once functioned. Those days are over.

The Advent of Shadow Arbitration Panels

Nowadays, international firms, and the billionaires behind them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels composed of corporate lawyers. The cases take place away from public scrutiny. Differing from national judiciaries, these panels provide no avenue for appeal or legal review. You or I cannot take a case to them, nor can our government, including businesses operating from this country. They are open exclusively to entities based overseas.

Should an arbitration panel rules that a law or policy may compromise the corporation’s expected profits, it has the power to grant damages of hundreds of millions, even billions.

These sums constitute not actual losses but money the panel members conclude the company could potentially have made. The state could be forced to abandon its policy. It will be deterred from enacting future policies along the same lines, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Record numbers of legal actions are being brought, as firms learn from each other, and investment funds bankroll lawsuits in exchange for a portion of the takings. The outcome? Sovereignty and democracy are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the decisions taken by elected bodies is that this provision has been incorporated – without democratic mandate, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Real-World Case: The UK Coalmine

Twelve months ago, activists won a great victory at the senior court. The judge determined that schemes to open the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had zero effect on climate commitments. The incoming administration then withdrew the consent the former government had issued. Now, this success faces being overturned by an offshore tribunal answering to no one but the entities filing the suit.

In August, a firm whose final controllers are located in the Cayman Islands filed a lawsuit challenging the UK government. Last week a arbitration panel in the US capital was convened to consider the case.

The company is suing the UK for the profits it would have generated if the mine had been allowed to go ahead. The public has no idea how much this might be. What legal team is acting on its behalf in opposition to the British government? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot the MP. The administration enacts a policy, the domestic court supports it, then a foreign company contests it through an unaccountable arbitration panel, and a elected official works for its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case to date, but it is highly possible that he’ll use the arbitration process to fight the restrictions the UK imposed on him after the war in Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, claiming sixteen billion dollars: an amount representing half government’s annual revenue. Included in the lawyers acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

Trade specialists believe that the EU’s procrastination in leveraging immobilised oligarchs' funds as collateral for its financial support package stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations may be obstructing the money Ukraine desperately needs.

Empty Promises and Escalating Risks

The public was told that these events were not possible. Years ago, a government leader, advocating for the biggest and most dangerous of all these agreements, stated: “Britain has agreed to investment treaty after trade deal and there has not been a issue in the past.” A consultant on this topic accused activists of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies start to realise the authority they’ve been granted, they will shift their focus from the weak nations to the strong ones” were greeted by scepticism.

That threat has come to pass. In the current period, fossil fuel and extraction companies have lodged a unprecedented number of suits against nations rich and poor, opposing – as in the case of the Cumbrian coalmine – state efforts to stop global warming. Firms have thus far won vast sums through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP