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What is your reckon our system of government works? Maybe something like this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. Yet, that was how it operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

Nowadays, overseas companies, and the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at secret arbitration panels made up of business advocates. These proceedings are held in secret. Unlike our courts, these bodies provide no right of appeal or legal review. You or I cannot take a case to them, nor can our government, or even enterprises headquartered in this country. The door is open solely for entities operating from foreign soil.

Should an arbitration panel finds that a law or policy could harm the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, potentially billions.

These awards represent not actual losses but funds the arbitrators decide the company would perhaps have made. The state might be compelled to drop the legislation. It will be hesitant to introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being initiated, as corporations observe each other, and investment funds finance suits for a share of a share of the settlements. The consequence? Democratic sovereignty and democratic governance are becoming unaffordable.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the choices taken by legislatures is that this clause has been inserted – without public consent, and frequently under an atmosphere of extreme secrecy – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

A year ago, environmental campaigners secured a significant win at the high court. The justice ruled that schemes to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no consequence on climate commitments. The new government later cancelled the licence the previous administration had granted. Today, this victory faces being overturned by an foreign court answering to no one but the corporations petitioning it.

During August, a corporate entity whose final controllers are based in the offshore financial centre lodged a claim versus the UK government. Last week a dispute settlement body in the United States was convened to adjudicate on it.

The claimant is suing the UK for the profits it could have earned if the mine had received permission to commence operations. We have no clear indication how much this could amount to. Which individual is acting on its behalf challenging the UK administration? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the domestic court upholds it, then a international entity challenges it through an secretive private court, and a sitting MP works for its behalf.

A Sanctions Case

On the same day that the tribunal on the coalmine case was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case to date, but it seems likely that he’ll use the tribunal to contest the sanctions the UK imposed on him following the Russian aggression. He has initiated proceedings against a small nation for this reason, claiming $16bn: equivalent to half of state's annual revenue. Included in the legal team acting for him in that case? a prominent lawyer, wife of the previous PM.

Legal experts believe that the EU’s delay in leveraging immobilised Russian assets as guarantee for its aid for Ukraine is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, undemocratic power over elected governments may be obstructing the money Ukraine urgently requires.

Misleading Claims and Mounting Threats

Politicians promised that these scenarios wouldn’t happen. In 2014, a former prime minister, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” An adviser on this issue labelled activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “as corporations grasp the authority they’ve been granted, they will shift their focus from the weak nations to the developed economies” were greeted by scepticism.

That warning has come to pass. Recently, fossil fuel and mining firms have initiated a historic level of claims against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – state efforts to prevent global warming. Firms have to date won $114bn via ISDS, of which oil majors have been awarded $84bn. That represents the combined GDP