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How do you understand our system of government works? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. The law is upheld by the courts. End of story. Yet, that was how it used to work. Not anymore.

The Advent of Secret Arbitration Panels

In the modern era, foreign corporations, along with the wealthy individuals who own them, can sue elected administrations for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are held away from public scrutiny. Differing from national judiciaries, these bodies provide no opportunity to appeal or legal review. You or I are unable to file a case to them, and neither can our government, or even companies based in this country. They are open solely for businesses based overseas.

Should an arbitration panel determines that a government measure could harm the corporation’s expected profits, it has the power to grant damages of vast sums, running into billions.

These sums are based not on tangible damages but money the arbitrators decide the company might otherwise have made. The government may have to abandon its policy. It becomes hesitant to introducing similar legislation along the same lines, due to the risk of facing litigation.

A Process Spiralling Out of Control

Record numbers of disputes are being filed, as corporations take cues from each other, and investment funds fund legal actions for a share of a cut of the settlements. The result? Sovereignty and popular rule are now too costly.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede domestic law and the decisions taken by parliaments is that this clause has been incorporated – without democratic mandate, and often in an atmosphere of profound opacity – into trade treaties.

A Real-World Example: The Whitehaven Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The judge determined that proposals to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been wrongly permitted by the outgoing administration, which had agreed to the extraordinary assertion that the mine could have no impact on national carbon targets. The Labour government subsequently revoked the licence the previous administration had granted. Now, this legal outcome could be compromised by an offshore tribunal accountable to no one but the corporations petitioning it.

During August, a corporate entity whose ultimate owners are located in the tax haven lodged a claim versus the UK government. Recently a tribunal in Washington DC was established to adjudicate on it.

This firm is suing the UK for the money it might have made if the mine had received permission to go ahead. The public has no idea how much this might be. What legal team is representing it against the British government? An elected representative, and former attorney-general in the outgoing administration, that great patriot the MP. The government makes a decision, the national judiciary upholds it, then a international entity contests it through an unaccountable offshore tribunal, and a sitting MP represents its behalf.

The Russian Lawsuit

On the same day that the tribunal on the coal mine dispute was appointed, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are scarce of the case at present, but it seems likely that he will utilise the arbitration process to contest the sanctions the UK enacted against him following the Russian aggression. He has already started suing a small nation for this reason, seeking sixteen billion dollars: half that government’s annual revenue. Included in the lawyers on his side? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s procrastination in utilising seized state funds as security for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations may be obstructing the funds Ukraine urgently requires.

Misleading Claims and Mounting Risks

The public was told that these events wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all these agreements, declared: “Britain has agreed to trade deal upon trade deal and there has not been a problem in the past.” An expert on this matter accused activists of “alarmism … the fact is, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states had to worry about such legal actions. Warnings that “when companies begin to understand the authority bestowed upon them, they will redirect their efforts from the weak nations to the developed economies” were met with widespread derision.

That threat has come to pass. This year, oil and gas and mining firms have filed a record number of claims against nations rich and poor, challenging – like the example of the UK mine – official measures to halt global warming. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP