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Can you reckon our system of government functions? It could be similar to this. We elect MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. The law is maintained by the courts. Simple as that. Well, that’s how it operated in the past. No longer.

The Rise of Shadow Tribunals

Nowadays, foreign corporations, or the oligarchs that control them, can sue governments for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings are conducted away from public scrutiny. Unlike our courts, these panels provide no avenue for appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, or even businesses headquartered in this country. Access is granted solely for corporations operating from foreign soil.

Should an arbitration panel finds that a legislative action might diminish the corporation’s expected profits, it may order damages of hundreds of millions, potentially billions.

These sums represent not actual losses but funds the panel members determine the company might otherwise have made. The state could be forced to drop the legislation. It will be deterred from passing future laws of a similar nature, for fear of facing litigation.

A System Running Rampant

Historically high figures of disputes are being filed, as corporations observe each other, and hedge funds bankroll lawsuits for a share of a portion of the awards. The result? Democratic sovereignty and popular rule are becoming prohibitively expensive.

The system is called “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the choices made by elected bodies is that this provision has been incorporated – without democratic mandate, and often in an atmosphere of profound opacity – within trade treaties.

A Specific Example: The UK Coal Mine

A year ago, a conservation group secured a significant win at the high court. The presiding officer determined that proposals to open the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no consequence on climate commitments. The incoming administration subsequently revoked the consent the former government had issued. Currently, this legal outcome is under threat by an foreign court reporting to only the entities bringing the case.

During August, a firm whose ultimate owners are based in the offshore financial centre lodged a claim versus the UK government. The previous week a arbitration panel in Washington DC was established to adjudicate on it.

This firm is litigating against the UK for the profits it might have made if the mine had been allowed to proceed. Citizens have no clear indication how much this sum represents. Who is serving as its counsel challenging the British government? A sitting MP, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state makes a decision, the high court upholds it, then a international entity contests it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Case

On the same day that the tribunal on the coal mine dispute was appointed, information emerged from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case so far, but it seems likely that he’ll use the arbitration process to contest the penalties the UK levied against him following the Russian aggression. He has started suing Luxembourg with similar intent, seeking sixteen billion dollars: equivalent to half of government’s yearly income. Among the lawyers representing him there? a prominent lawyer, wife of the ex-UK leader.

Legal experts believe that the EU’s delay in leveraging immobilised Russian assets as collateral for its financial support package arises from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

Misleading Claims and Growing Risks

The public was told that such things were not possible. Previously, a government leader, championing the biggest and most dangerous of all investment pacts, declared: “The UK has signed trade deal upon trade deal and we have never seen a case in the past.” A consultant on this matter labelled activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “when companies start to realise the power they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were dismissed with widespread derision.

That prediction has come to pass. This year, oil and gas and resource corporations have lodged a historic level of cases against nations rich and poor, contesting – as in the case of the Whitehaven project – official measures to halt climate breakdown. Firms have thus far won $114bn by using ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP