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Can you understand our political system works? Perhaps along the lines of this. We elect MPs. They vote on bills. When a majority is secured, the bills pass into law. Statutes is upheld by the courts. End of story. Yet, that used to be how it once functioned. No longer.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, and the oligarchs behind them, have the power to sue governments for the policies they pass, at private courts composed of commercial attorneys. The cases are held away from public scrutiny. Differing from national judiciaries, these bodies allow no avenue for appeal or judicial review. You or I are unable to file a case to them, just as our government, or even companies operating from this country. The door is open exclusively to corporations registered abroad.

Should an arbitration panel finds that a government measure might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, running into billions.

These sums represent not tangible damages but money the panel members decide the company would perhaps have made. The government could be forced to abandon its policy. It is discouraged from enacting future policies of a similar nature, worried about incurring a lawsuit.

A System Running Rampant

Record numbers 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 awards. The result? National sovereignty and popular rule are turning into prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the rulings made by parliaments is that this clause has been inserted – absent public approval, and frequently under a climate of total confidentiality – into trade treaties.

A Specific Case: The Cumbrian Coal Mine

Last year, activists achieved a major legal triumph at the high court. The justice ruled that schemes to open the first new deep coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have no consequence on national carbon targets. The incoming administration then withdrew the consent the previous administration had approved. Currently, this legal outcome could be compromised by an secret arbitration panel accountable to only the corporations petitioning it.

Last August, a company whose beneficial owners reside in the Cayman Islands filed a lawsuit versus the UK government. The previous week a arbitration panel in the United States 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 received permission to proceed. Citizens have no clear indication how much this might be. Which individual is representing it against the British government? A sitting MP, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The administration enacts a policy, the high court validates it, then a international entity challenges it through an secretive arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

On the same day that the court on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. We know scarce of the case to date, but it appears probable that he’ll use the ISDS mechanism to contest the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has started suing a small nation with similar intent, seeking a colossal sum: half that nation's annual revenue. Among the lawyers representing him there? the wife of a former prime minister, wife of the previous PM.

International law scholars argue that the EU’s hesitation in utilising seized oligarchs' funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the money Ukraine critically depends on.

Empty Promises and Mounting Threats

Politicians promised that these scenarios were not possible. Previously, a former prime minister, promoting the biggest and most dangerous of all investment pacts, declared: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this topic accused campaigners of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries needed to fear such legal actions. Predictions that “once firms start to realise the power they now possess, they will shift their focus from the poorer states to the strong ones” were met with widespread derision.

That warning is now a reality. Recently, energy and mining firms have initiated a record number of suits against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – official measures to prevent global warming. Corporations have thus far won $114bn via ISDS, of which energy giants have secured $84bn. That equates to the combined GDP