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How do you reckon our political system functions? Maybe something like this. We elect MPs. They legislate on bills. If a majority is achieved, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. However, that used to be how it once functioned. Not anymore.

The Rise of Shadow Arbitration Panels

Nowadays, international firms, and the wealthy individuals who own them, can sue nation states for the laws they pass, at private courts staffed by corporate lawyers. These proceedings are held behind closed doors. In contrast to domestic courts, these panels grant no opportunity to appeal or judicial review. You or I cannot take a case to them, nor can our government, including companies headquartered in this country. They are open exclusively to entities operating from foreign soil.

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

This compensation represent not real financial harm but money the panel members decide the company would perhaps have made. The government may have to drop the legislation. It is discouraged from enacting future policies of a similar nature, for fear of facing litigation.

A System Running Rampant

Record numbers of cases are being filed, as firms observe each other, and private equity bankroll lawsuits in exchange for a share of the settlements. The result? Sovereignty and popular rule are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the rulings taken by elected bodies is that this stipulation has been incorporated – absent public approval, and typically amid conditions of profound opacity – inside international trade agreements.

A Specific Instance: The UK Coalmine

Last year, activists won a great victory at the High Court. The presiding officer determined that schemes to dig the first new deep coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the Conservative government, which had endorsed the extraordinary assertion that the mine could have zero effect on our carbon budgets. The Labour government later cancelled the licence the previous administration had approved. Now, this legal outcome faces being overturned by an foreign court answering to no one but the corporations filing the suit.

Last August, a company whose beneficial owners are based in the Cayman Islands initiated proceedings versus the UK government. The previous week a dispute settlement body in the United States was convened to consider the case.

The claimant is suing the UK for the profits it might have made if the mine had been allowed to commence operations. The public has little idea how much this sum represents. Who is serving as its counsel in opposition to the British government? A member of parliament, and former attorney-general in the Conservative government, that great patriot the MP. The state enacts a policy, the national judiciary upholds it, then a overseas corporation contests it through an undemocratic arbitration panel, and a elected official works for its behalf.

A Sanctions Case

Concurrently that the court on the coalmine case was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the penalties the UK levied against him subsequent to the Russian aggression. He has started suing Luxembourg with similar intent, seeking $16bn: half that state's annual revenue. Included in the counsel representing him there? a prominent lawyer, married to the previous PM.

Legal experts argue that the EU’s hesitation in leveraging immobilised Russian assets as security for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the funds Ukraine critically depends on.

Empty Promises and Growing Costs

We were assured that such things wouldn’t happen. Previously, a senior politician, championing the biggest and most dangerous of all such treaties, stated: “We’ve signed trade deal after trade deal and there has not been a problem in the past.” An adviser on this topic labelled campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by these lawsuits. Cautionary notes that “when companies grasp the authority bestowed upon them, they will turn their attention from the poorer states to the developed economies” were dismissed with scepticism.

That warning is now a reality. In the current period, fossil fuel and mining firms have lodged a unprecedented number of cases against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – official measures to prevent climate breakdown. Corporations have so far won vast sums through ISDS, of which fossil fuel companies have been awarded the majority. That represents the combined GDP