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What is your perceive our political system works? Perhaps something like this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills pass into law. Legislation is upheld by the courts. Simple as that. Well, that used to be how it operated in the past. Not anymore.

The Emergence of Shadow Arbitration Panels

In the modern era, international firms, along with the wealthy individuals that control them, can sue governments for the laws they pass, at offshore tribunals composed of business advocates. These proceedings take place behind closed doors. Differing from national judiciaries, these panels grant no opportunity to appeal or legal review. You or I cannot take a case to them, just as our government, or even businesses headquartered in this country. Access is granted only to entities registered abroad.

If a tribunal finds that a government measure may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

These sums are based not on actual losses but compensation the panel members decide the company could potentially have made. The government could be forced to rescind the measure. It will be hesitant to introducing similar legislation along the same lines, due to the risk of facing litigation.

A Process Growing Exponentially

Record numbers of disputes are being brought, as corporations learn from each other, and hedge funds bankroll lawsuits in return for a portion of the takings. The result? Democratic sovereignty and democracy are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the decisions made by legislatures is that this clause has been incorporated – absent public approval, and typically amid an atmosphere of total confidentiality – inside bilateral investment treaties.

A Specific Example: The Whitehaven Coalmine

Last year, a conservation group won a great victory at the High Court. The presiding officer determined that proposals to open the first deep coalmine in the UK for three decades, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have no impact on climate commitments. The Labour government subsequently revoked the permission the former government had issued. Currently, this legal outcome is under threat by an foreign court reporting to only the companies bringing the case.

During August, a corporate entity whose beneficial owners are based in the tax haven lodged a claim against the UK government. Recently a dispute settlement body in Washington DC was set up to consider the case.

This firm is litigating against the UK for the revenue it would have generated if the mine had received permission to proceed. We have little idea how much this could amount to. Who is representing it against the state? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot the MP. The state makes a decision, the domestic court upholds it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a elected official acts on its behalf.

The Russian Challenge

Concurrently that the court on the mining lawsuit was appointed, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case to date, but it seems likely that he will utilise the tribunal to contest the sanctions the UK imposed on him after the Russian aggression. He has previously filed a claim against a small nation on these grounds, seeking a colossal sum: half that state's annual revenue. Included in the lawyers on his side? a prominent lawyer, spouse of the previous PM.

Legal experts believe that the EU’s delay in leveraging immobilised oligarchs' funds as security for its financial support package stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations may be obstructing the money Ukraine desperately needs.

Empty Promises and Escalating Costs

We were assured that these events could not occur. Years ago, a former prime minister, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this topic described campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations should be concerned by such legal actions. Warnings that “once firms start to realise the power they’ve been granted, they will shift their focus from the weak nations to the developed economies” were dismissed with general mockery.

That prediction has come to pass. This year, oil and gas and mining firms have lodged a record number of claims against nations both wealthy and developing, contesting – like the example of the UK mine – government attempts to prevent climate breakdown. Companies have so far won $114bn by using ISDS, of which oil majors have secured the majority. That represents the combined GDP