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What is your reckon our system of government works? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. If a majority is obtained, the bills become law. Statutes is upheld by the courts. End of story. However, that was how it once functioned. Those days are over.

The Rise of Secret Arbitration Panels

Today, foreign corporations, along with the oligarchs that control them, are able to litigate against nation states for the laws they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes take place in secret. Differing from national judiciaries, these bodies provide no right of appeal or judicial review. You or I cannot take a case to them, just as our government, or even enterprises operating from this country. Access is granted exclusively to corporations registered abroad.

When a secret court rules that a law or policy could harm the corporation’s projected profits, it can award financial penalties of vast sums, potentially billions.

This compensation represent not tangible damages but compensation the arbitrators determine the company would perhaps have made. The government may have to rescind the measure. It will be hesitant to passing future laws in that area, due to the risk of incurring a lawsuit.

A System Running Rampant

Historically high figures of legal actions are being filed, as companies observe each other, and hedge funds finance suits in return for a share of the settlements. The outcome? Democratic sovereignty and popular rule are now prohibitively expensive.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede domestic law and the rulings taken by parliaments is that this stipulation has been incorporated – without democratic mandate, and often in a climate of profound opacity – into international trade agreements.

A Real-World Instance: The UK Coal Mine

A year ago, activists won a great victory at the High Court. The presiding officer ruled that plans to dig the first deep coalmine in the UK for 30 years, in Cumbria, were wrongly permitted by the previous government, which had accepted the bizarre claim that the mine would have had no impact on climate commitments. The new government later cancelled the licence the former government had issued. Today, this legal outcome is under threat by an secret arbitration panel reporting to exclusively the corporations bringing the case.

In August, a company whose final controllers are based in the offshore financial centre filed a lawsuit challenging the UK government. Last week a tribunal in Washington DC was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the money it might have made if the mine had been allowed to proceed. The public has little idea how much this could amount to. Who is acting on its behalf against the state? A member of parliament, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the high court validates it, then a overseas corporation disputes it through an unaccountable offshore tribunal, and a elected official works for its behalf.

The Russian Challenge

Simultaneously that the court on the mining lawsuit was established, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. We know little of the case to date, but it appears probable that he may employ the arbitration process to contest the sanctions the UK enacted against him subsequent to the war in Ukraine. He has filed a claim against Luxembourg for this reason, seeking sixteen billion dollars: half that government’s yearly budget. Included in the counsel on his side? a prominent lawyer, wife of the previous PM.

Legal experts contend that the EU’s procrastination in leveraging immobilised state funds as collateral for its aid for Ukraine is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, secretive influence over sovereign states may be obstructing the funds Ukraine desperately needs.

Empty Promises and Mounting Threats

The public was told that these events wouldn’t happen. Years ago, a former prime minister, championing the biggest and most dangerous of all investment pacts, told us: “Britain has agreed to trade agreement upon trade deal and we have never seen a issue in the past.” An expert on this topic accused critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that exclusively weaker states had to worry about such legal actions. Predictions that “as corporations grasp the influence bestowed upon them, they will turn their attention from the poorer states to the developed economies” were dismissed with scepticism.

That threat is now a reality. This year, oil and gas and extraction companies have initiated a historic level of claims against nations rich and poor, opposing – as in the case of the UK mine – state efforts to stop environmental catastrophe. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained the majority. That equates to the combined GDP