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What is your understand our system of government functions? Perhaps similar to this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. That's it. Yet, that used to be how it operated in the past. No longer.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, or the wealthy individuals who own them, are able to litigate against elected administrations for the regulations they pass, at private courts staffed by commercial attorneys. These proceedings are held behind closed doors. Differing from national judiciaries, these bodies allow no opportunity to appeal or legal review. You or I are unable to file a case to them, nor can our government, including enterprises operating from this country. They are open only to entities registered abroad.

Should an arbitration panel finds that a government measure may compromise the corporation’s projected profits, it can award damages of vast sums, even billions.

This compensation constitute not real financial harm but compensation the tribunal officials conclude the company would perhaps have made. The administration might be compelled to rescind the measure. It will be discouraged from introducing similar legislation along the same lines, worried about facing litigation.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as corporations learn from each other, and hedge funds fund legal actions for a share of a cut of the settlements. The consequence? National sovereignty and democracy are turning into unaffordable.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the decisions enacted by elected bodies is that this provision has been inserted – without democratic mandate, and often in a climate of profound opacity – inside bilateral investment treaties.

A Real-World Example: The Whitehaven Coalmine

Last year, a conservation group secured a significant win at the high court. The justice ruled that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were wrongly permitted by the Conservative government, which had accepted the extraordinary assertion that the mine would have no impact on national carbon targets. The new government then withdrew the permission the former government had approved. Currently, this victory is under threat by an secret arbitration panel reporting to exclusively the entities bringing the case.

During August, a company whose beneficial owners are located in the Cayman Islands lodged a claim against the UK government. The previous week a tribunal in Washington DC was convened to consider the case.

The claimant is litigating against the UK for the money it could have earned if the mine had received permission to proceed. We have no idea how much this sum represents. Which individual is representing it against the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The state makes a decision, the national judiciary validates it, then a overseas corporation contests it through an unaccountable offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Lawsuit

On the same day that the panel on the coalmine case was convened, information emerged from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are nothing of the case to date, but it is highly possible that he’ll use the tribunal to challenge the restrictions the UK enacted against him subsequent to the Russian aggression. He has initiated proceedings against a small nation with similar intent, seeking $16bn: equivalent to half of nation's yearly income. Among the lawyers on his side? a prominent lawyer, wife of the previous PM.

Trade specialists argue that the EU’s procrastination in leveraging immobilised state funds as security for its aid for Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This unprecedented, secretive influence over democratic administrations could be blocking the finance Ukraine desperately needs.

False Assurances and Mounting Costs

The public was told that these events wouldn’t happen. Years ago, a senior politician, championing the largest and riskiest of all such treaties, told us: “Britain has agreed to trade agreement after trade deal and there has never been a problem in the past.” An adviser on this topic accused activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries needed to fear such legal actions. Predictions that “as corporations begin to understand the power bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by widespread derision.

That warning has come to pass. Recently, oil and gas and mining firms have initiated a historic level of cases against nations rich and poor, opposing – similar to the Cumbrian coalmine – official measures to stop environmental catastrophe. Firms have so far won vast sums through ISDS, of which energy giants have been awarded the majority. That is equivalent to the combined GDP