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What is your understand our system of government works? It could be along the lines of this. The public votes for MPs. They legislate on bills. Should a majority is secured, the bills become law. The law is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. No longer.

The Advent of Shadow Arbitration Panels

Today, foreign corporations, or the wealthy individuals who own them, have the power to sue nation states for the regulations they pass, at offshore tribunals made up of corporate lawyers. The cases are conducted in secret. In contrast to domestic courts, these tribunals provide no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, just as our government, or even companies headquartered in this country. They are open only to corporations registered abroad.

If a tribunal finds that a legislative action may compromise the corporation’s expected profits, it can award damages of hundreds of millions, potentially billions.

These awards represent not actual losses but funds the arbitrators conclude the company might otherwise have made. The government may have to drop the legislation. It becomes deterred from passing future laws in that area, worried about facing litigation.

A Process Spiralling Out of Control

Historically high figures of legal actions are being filed, as companies take cues from each other, and private equity finance suits in return for a cut of the settlements. The result? National sovereignty and democracy are now too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the decisions made by elected bodies is that this provision has been written – absent public approval, and typically amid a climate of extreme secrecy – into trade treaties.

A Real-World Case: The Whitehaven Coalmine

A year ago, activists won a great victory at the High Court. The justice ruled that schemes to open the first major coal mine in the UK for 30 years, in northwest England, were found to be illegally sanctioned by the outgoing administration, which had endorsed the bizarre claim that the mine could have no consequence on national carbon targets. The Labour government then withdrew the permission the previous administration had issued. Currently, this legal outcome is under threat by an foreign court accountable to only the companies filing the suit.

During August, a firm whose beneficial owners reside in the offshore financial centre filed a lawsuit against the UK government. The previous week a arbitration panel in the US capital was set up to consider the case.

The company is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to go ahead. We have no idea how much this sum represents. Who is acting on its behalf challenging the UK administration? A sitting MP, and former attorney-general in the outgoing administration, that great patriot the MP. The administration makes a decision, the national judiciary supports it, then a overseas corporation challenges it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Challenge

Simultaneously that the court on the coalmine case was established, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. The public knows little of the case to date, but it appears probable that he’ll use the arbitration process to fight the restrictions the UK levied against him after the Russian aggression. He has previously filed a claim against Luxembourg with similar intent, claiming a colossal sum: equivalent to half of state's annual revenue. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars believe that the EU’s procrastination in using frozen state funds as security for its financial support package stems from concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over democratic administrations might be preventing the finance Ukraine urgently requires.

False Assurances and Growing Threats

The public was told that these events were not possible. Years ago, a senior politician, championing the most significant and hazardous of all these agreements, told us: “The UK has signed trade agreement upon trade deal and there has never been a case in the past.” A consultant on this issue accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries had to worry about such legal actions. Predictions that “once firms grasp the authority bestowed upon them, they will redirect their efforts from the poorer states to the wealthy nations” were greeted by general mockery.

That warning is now a reality. Recently, fossil fuel and resource corporations have initiated a record number of claims against nations both wealthy and developing, challenging – like the example of the UK mine – government attempts to halt environmental catastrophe. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP