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What is your perceive our political system works? It could be something like this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Yet, that used to be how it operated in the past. Not anymore.

The Rise of Secret Arbitration Panels

In the modern era, international firms, along with the wealthy individuals behind them, can sue elected administrations for the laws they pass, at private courts composed of commercial attorneys. Such disputes take place away from public scrutiny. Differing from national judiciaries, these bodies grant no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even businesses headquartered in this country. They are open only to entities based overseas.

Should an arbitration panel rules that a government measure could harm the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions, even billions.

These sums are based not on tangible damages but compensation the arbitrators decide the company might otherwise have made. The state might be compelled to drop the legislation. It is hesitant to enacting future policies of a similar nature, due to the risk of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being brought, as corporations observe each other, and hedge funds bankroll lawsuits in exchange for a share of the settlements. The result? Democratic sovereignty and democratic governance are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can supersede domestic law and the decisions made by parliaments is that this stipulation has been incorporated – without public consent, and often in a climate of profound opacity – inside bilateral investment treaties.

A Real-World Case: The UK Coal Mine

Last year, activists secured a significant win at the senior court. The justice found that proposals to dig the first major coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine would have had no impact on national carbon targets. The new government then withdrew the permission the former government had granted. Currently, this victory is under threat by an foreign court reporting to exclusively the companies bringing the case.

Last August, a firm whose final controllers are located in the tax haven lodged a claim against the UK government. Recently a arbitration panel in the US capital was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had received permission to commence operations. We have no idea how much this could amount to. Who is acting on its behalf challenging the British government? A sitting MP, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The state makes a decision, the national judiciary validates it, then a international entity contests it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coalmine case was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows little of the case at present, but it seems likely that he may employ the ISDS mechanism to contest the penalties the UK imposed on him subsequent to the invasion of Ukraine. He has already started suing Luxembourg for this reason, demanding a colossal sum: half that state's yearly income. Among the lawyers acting for him in that case? Cherie Blair, wife of the previous PM.

Trade specialists contend that the EU’s hesitation in utilising seized oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a investment pact. This extraordinary, secretive influence over democratic administrations could be blocking the funds Ukraine critically depends on.

Misleading Claims and Growing Threats

Politicians promised that these scenarios were not possible. In 2014, a senior politician, promoting the biggest and most dangerous of all these agreements, stated: “Britain has agreed to trade agreement after trade deal and there has not been a case in the past.” A consultant on this matter labelled campaigners of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that exclusively weaker states should be concerned by such legal actions. Cautionary notes that “once firms begin to understand the influence bestowed upon them, they will turn their attention from the vulnerable countries to the wealthy nations” were met with scepticism.

That warning has now materialised. In the current period, energy and extraction companies have filed a record number of claims against nations rich and poor, contesting – like the example of the Whitehaven project – state efforts to stop global warming. Corporations have so far won $114bn through ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP