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How do you perceive our political system functions? Maybe something like this. Citizens choose MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. End of story. Well, that’s how it used to work. Those days are over.

The Advent of Shadow Arbitration Panels

In the modern era, foreign corporations, or the oligarchs that control them, are able to litigate against nation states for the regulations they pass, at offshore tribunals made up of commercial attorneys. The cases are conducted away from public scrutiny. Differing from national judiciaries, these bodies allow no avenue for appeal or judicial review. The general public are barred from bringing a case to them, and neither can our government, including enterprises operating from this country. The door is open solely for businesses registered abroad.

When a secret court rules that a legislative action could harm the corporation’s projected profits, it may order financial penalties of hundreds of millions, running into billions.

This compensation are based not on real financial harm but funds the arbitrators determine the company would perhaps have made. The government may have to abandon its policy. It will be hesitant to introducing similar legislation in that area, for fear of being sued.

A Mechanism Running Rampant

Historically high figures of cases are being initiated, as corporations learn from each other, and investment funds bankroll lawsuits in exchange for a share of the awards. The outcome? Democratic sovereignty and democratic governance are now unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the choices taken by parliaments is that this stipulation has been incorporated – absent public approval, and often in a climate of extreme secrecy – inside trade treaties.

A Specific Instance: The UK Coal Mine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The justice found that schemes to excavate the first new deep coal mine in the UK for three decades, in northwest England, were wrongly permitted by the Conservative government, which had endorsed the extraordinary assertion that the mine could have no consequence on climate commitments. The Labour government later cancelled the licence the previous administration had approved. Now, this legal outcome could be compromised by an offshore tribunal accountable to exclusively the companies filing the suit.

Last August, a corporate entity whose beneficial owners are based in the Cayman Islands filed a lawsuit versus the UK government. Last week a arbitration panel in the US capital was established to consider the case.

The claimant is litigating against the UK for the profits it would have generated if the mine had been permitted to commence operations. Citizens have no clear indication how much this might be. What legal team is serving as its counsel against the state? A member of parliament, and former attorney-general in the previous government, that great patriot the MP. The state enacts a policy, the domestic court validates it, then a overseas corporation disputes it through an undemocratic private court, and a elected official represents its behalf.

An Oligarch's Case

Concurrently that the panel on the coalmine case was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case at present, but it appears probable that he will utilise the tribunal to challenge the restrictions the UK enacted against him following the Russian aggression. He has previously filed a claim against Luxembourg with similar intent, demanding a colossal sum: an amount representing half nation's annual revenue. Part of the legal team acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars believe that the EU’s hesitation in leveraging immobilised state funds as collateral for its financial support package arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

Misleading Claims and Escalating Costs

Politicians promised that such things wouldn’t happen. In 2014, a government leader, advocating for the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to investment treaty after trade deal and there has not been a problem in the past.” An adviser on this topic labelled critics of “alarmism … in reality, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “when companies start to realise the power they now possess, they will shift their focus from the vulnerable countries to the wealthy nations” were met with scepticism.

That warning is now a reality. This year, fossil fuel and extraction companies have filed a record number of suits against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – official measures to halt global warming. Firms have thus far won vast sums via ISDS, of which fossil fuel companies have obtained $84bn. That is equivalent to the combined GDP