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Can you reckon our political system works? Maybe similar to this. Citizens choose MPs. They legislate on bills. When a majority is secured, the bills pass into law. The law is upheld by the courts. Simple as that. However, that’s how it operated in the past. Not anymore.

The Advent of Secret Arbitration Panels

Nowadays, overseas companies, or the oligarchs who own them, can sue elected administrations for the policies they pass, at private courts made up of commercial attorneys. These proceedings take place behind closed doors. Differing from national judiciaries, these bodies allow no right of appeal or legal review. You or I cannot take a case to them, and neither can our government, or even companies based in this country. Access is granted solely for entities operating from foreign soil.

If a tribunal determines that a law or policy might diminish the corporation’s projected profits, it may order financial penalties of vast sums, running into billions.

This compensation constitute not tangible damages but compensation the panel members conclude the company might otherwise have made. The government could be forced to rescind the measure. It will be discouraged from passing future laws along the same lines, for fear of facing litigation.

A Process Growing Exponentially

Record numbers of cases are being initiated, as companies learn from each other, and investment funds finance suits for a share of a cut of the awards. The consequence? National sovereignty and democratic governance are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the decisions enacted by parliaments is that this provision has been written – absent public approval, and often in a climate of total confidentiality – inside bilateral investment treaties.

A Real-World Example: The UK Coalmine

A year ago, a conservation group won a great victory at the high court. The presiding officer determined that proposals to excavate the first new deep coal mine in the UK for a generation, in northwest England, were wrongly permitted by the outgoing administration, which had accepted the bizarre claim that the mine could have zero effect on climate commitments. The incoming administration subsequently revoked the consent the Tories had issued. Today, this success is under threat by an offshore tribunal accountable to only the companies bringing the case.

During August, a corporate entity whose beneficial owners are located in the Cayman Islands filed a lawsuit versus the UK government. Recently a tribunal in the United States was convened to hear it.

This firm is litigating against the UK for the profits it might have made if the mine had been allowed to go ahead. Citizens have no idea how much this could amount to. What legal team is representing it in opposition to the British government? An elected representative, and previous senior legal advisor in the Conservative government, the noted patriot Sir Geoffrey Cox. The state passes a law, the domestic court upholds it, then a international entity challenges it through an undemocratic private court, and a elected official represents its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the coalmine case was appointed, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, Mikhail Fridman. The public knows nothing of the case to date, but it seems likely that he may employ the ISDS mechanism to fight the restrictions the UK levied against him subsequent to the Russian aggression. He has already started suing a small nation on these grounds, claiming sixteen billion dollars: equivalent to half of state's yearly budget. Included in the lawyers acting for him in that case? a prominent lawyer, married to the former British prime minister.

International law scholars contend that the EU’s hesitation in using frozen state funds as collateral for its financial support package is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, undemocratic power over democratic administrations may be obstructing the money Ukraine critically depends on.

Empty Promises and Mounting Costs

The public was told that such things were not possible. Previously, a government leader, advocating for the most significant and hazardous of all such treaties, stated: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” An expert on this issue labelled campaigners of “scaremongering … the truth is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Cautionary notes that “once firms start to realise the authority they now possess, they will shift their focus from the poorer states to the strong ones” were greeted by scepticism.

That threat has now materialised. In the current period, fossil fuel and mining firms have lodged a record number of suits against nations across the economic spectrum, contesting – like the example of the UK mine – official measures to stop climate breakdown. Corporations have so far won vast sums by using ISDS, of which oil majors have obtained $84bn. That represents the combined GDP