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Can you understand our system of government works? It could be similar to this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Legislation is maintained by the courts. End of story. Yet, that’s how it operated in the past. No longer.

The Rise of Shadow Arbitration Panels

Today, overseas companies, and the wealthy individuals that control them, have the power to sue nation states for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. The cases take place behind closed doors. In contrast to domestic courts, these bodies provide no avenue for appeal or legal review. The general public cannot take a case to them, nor can our government, or even enterprises operating from this country. Access is granted exclusively to businesses based overseas.

If a tribunal finds that a legislative action could harm the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, potentially billions.

These sums are based not on actual losses but compensation the arbitrators conclude the company might otherwise have made. The administration might be compelled to abandon its policy. It will be discouraged from passing future laws of a similar nature, worried about incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of cases are being filed, as companies observe each other, and hedge funds fund legal actions in return for a cut of the settlements. The result? Sovereignty and democracy are becoming unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The reason it can override a country's own laws and the choices taken by legislatures is that this stipulation has been inserted – absent public approval, and often in an atmosphere of total confidentiality – within international trade agreements.

A Specific Instance: The UK Coal Mine

Last year, activists achieved a major legal triumph at the high court. The justice ruled that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have had zero effect on our carbon budgets. The new government later cancelled the licence the Tories had granted. Now, this success is under threat by an secret arbitration panel answering to only the companies filing the suit.

During August, a company whose ultimate owners are based in the offshore financial centre filed a lawsuit challenging the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the money it could have earned if the mine had received permission to go ahead. We have little idea how much this could amount to. Which individual is acting on its behalf challenging the UK administration? An elected representative, and former attorney-general in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The administration makes a decision, the national judiciary upholds it, then a overseas corporation challenges it through an secretive arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Challenge

Concurrently that the court on the mining lawsuit was appointed, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. Details are little of the case so far, but it seems likely that he’ll use the tribunal to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has already started suing Luxembourg for this reason, demanding a colossal sum: equivalent to half of nation's yearly budget. Among the legal team acting for him in that case? the wife of a former prime minister, wife of the ex-UK leader.

Trade specialists believe that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its financial support package is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations might be preventing the funds Ukraine desperately needs.

False Assurances and Growing Risks

The public was told that such things could not occur. Previously, a government leader, promoting the most significant and hazardous of all investment pacts, stated: “Britain has agreed to trade agreement after trade deal and there has not been a issue in the past.” An adviser on this topic accused critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The general impression seemed to be that solely developing countries needed to fear such legal actions. Cautionary notes that “once firms grasp the influence they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were greeted by scepticism.

That prediction has come to pass. This year, fossil fuel and resource corporations have lodged a historic level of claims against nations across the economic spectrum, opposing – similar to the UK mine – official measures to stop environmental catastrophe. Companies have thus far won $114bn by using ISDS, of which fossil fuel companies have obtained $84bn. That equates to the combined GDP