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What is your reckon our system of government works? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills pass into law. The law is maintained by the courts. That's it. Yet, that was how it once functioned. Not anymore.

The Advent of Shadow Tribunals

Today, overseas companies, along with the billionaires behind them, can sue elected administrations for the regulations they pass, at secret arbitration panels staffed by commercial attorneys. The cases are conducted behind closed doors. In contrast to domestic courts, these bodies allow no avenue for appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even businesses operating from this country. Access is granted exclusively to businesses based overseas.

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

These awards constitute not actual losses but compensation the arbitrators determine the company could potentially have made. The state may have to abandon its policy. It becomes deterred from enacting future policies along the same lines, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of disputes are being brought, as companies take cues from each other, and hedge funds bankroll lawsuits in return for a portion of the settlements. The consequence? Democratic sovereignty and democratic governance are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump domestic law and the choices taken by legislatures is that this provision has been inserted – absent public approval, and typically amid conditions of extreme secrecy – inside international trade agreements.

A Specific Example: The UK Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that proposals to excavate the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration then withdrew the permission the former government had issued. Today, this success faces being overturned by an secret arbitration panel accountable to only the entities bringing the case.

In August, a corporate entity whose beneficial owners reside in the tax haven filed a lawsuit challenging the UK government. The previous week a tribunal in Washington DC was established to consider the case.

This firm is litigating against the UK for the revenue it might have made if the mine had received permission to proceed. Citizens have little idea how much this could amount to. What legal team is serving as its counsel against the British government? An elected representative, and former attorney-general in the Conservative government, that great patriot the MP. The government makes a decision, the domestic court validates it, then a international entity challenges it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Challenge

Concurrently that the panel on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case so far, but it is highly possible that he may employ the arbitration process to contest the sanctions the UK imposed on him after the Russian aggression. He has previously initiated proceedings against Luxembourg for this reason, demanding $16bn: an amount representing half state's yearly income. Included in the lawyers representing him there? a prominent lawyer, wife of the previous PM.

International law scholars believe that the EU’s hesitation in using frozen state funds as collateral for its financial support package is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over democratic administrations may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Risks

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, promoting the largest and riskiest of all investment pacts, stated: “We’ve signed trade deal after trade deal and there has never been a case in the past.” An expert on this topic labelled campaigners of “alarmism … in reality, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states had to worry about these lawsuits. Warnings that “as corporations grasp the authority they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That threat has come to pass. In the current period, energy and extraction companies have filed a record number of suits against nations both wealthy and developing, contesting – similar to the UK mine – state efforts to prevent environmental catastrophe. Firms have so far won vast sums through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP