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How do you understand our system of government works? Maybe something like this. We elect MPs. They debate and pass bills. If a majority is secured, the bills pass into law. Legislation is maintained by the courts. End of story. Yet, that was how it operated in the past. Those days are over.

The Emergence of Shadow Arbitration Panels

Today, overseas companies, along with the billionaires behind them, can sue governments for the laws they pass, at private courts made up of commercial attorneys. The cases are held in secret. In contrast to domestic courts, these panels provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even enterprises headquartered in this country. Access is granted only to businesses based overseas.

When a secret court rules that a law or policy could harm the corporation’s expected profits, it has the power to grant damages of hundreds of millions, running into billions.

These sums represent not real financial harm but funds the panel members conclude the company might otherwise have made. The government may have to abandon its policy. It is hesitant to introducing similar legislation in that area, due to the risk of facing litigation.

A Mechanism Spiralling Out of Control

Unprecedented levels of cases are being brought, as firms observe each other, and investment funds bankroll lawsuits for a share of a portion of the settlements. The result? Democratic sovereignty and popular rule are now prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the rulings taken by elected bodies is that this stipulation has been incorporated – without public consent, and frequently under a climate of total confidentiality – within trade treaties.

A Concrete Example: The Whitehaven Coalmine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer found that schemes to open the first new deep coal mine in the UK for a generation, in northwest England, had been unlawfully approved by the Conservative government, which had accepted the extraordinary assertion that the mine could have no consequence on national carbon targets. The Labour government later cancelled the licence the previous administration had approved. Today, this success faces being overturned by an secret arbitration panel accountable to exclusively the companies filing the suit.

During August, a corporate entity whose beneficial owners are based in the Cayman Islands initiated proceedings against the UK government. Recently a dispute settlement body in Washington DC was set up to hear it.

The company is litigating against the UK for the revenue it would have generated if the mine had received permission to commence operations. Citizens have no clear indication how much this could amount to. Who is acting on its behalf against the UK administration? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the high court validates it, then a international entity contests it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

A Sanctions Case

Simultaneously that the panel on the coal mine dispute was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case at present, but it appears probable that he will utilise the arbitration process to contest the sanctions the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against another European state for this reason, claiming sixteen billion dollars: half that state's yearly budget. Included in the counsel representing him there? a prominent lawyer, wife of the former British prime minister.

Trade specialists contend that the EU’s hesitation in using frozen Russian assets as security for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the offshore corporate courts, under a trade agreement. This unprecedented, unaccountable authority over elected governments might be preventing the money Ukraine urgently requires.

Misleading Claims and Growing Costs

We were assured that these events could not occur. In 2014, a former prime minister, championing the biggest and most dangerous of all investment pacts, told us: “We’ve signed trade deal upon trade deal and there has never been a problem in the past.” An expert on this matter described campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The overall message was crafted to be that only poorer nations needed to fear ISDS claims. Warnings that “as corporations begin to understand the power they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were dismissed with widespread derision.

That prediction has come to pass. In the current period, energy and resource corporations have initiated a record number of suits against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – official measures to prevent climate breakdown. Firms have so far won $114bn by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP