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Can you reckon our system of government works? Perhaps along the lines of this. The public votes for MPs. They vote on bills. Should a majority is obtained, the bills pass into law. The law are enforced by the courts. Simple as that. However, that’s how it once functioned. Those days are over.

The Rise of Shadow Tribunals

Today, overseas companies, along with the wealthy individuals that control them, are able to litigate against governments for the policies they pass, at secret arbitration panels made up of business advocates. These proceedings take place behind closed doors. In contrast to domestic courts, these bodies grant no right of appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, or even enterprises operating from this country. Access is granted only to corporations registered abroad.

Should an arbitration panel determines that a law or policy might diminish the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, even billions.

These awards are based not on real financial harm but funds the panel members determine the company could potentially have made. The government might be compelled to abandon its policy. It will be discouraged from enacting future policies of a similar nature, due to the risk of being sued.

A Mechanism Growing Exponentially

Historically high figures of disputes are being initiated, as firms learn from each other, and investment funds finance suits in exchange for a share of the awards. The outcome? National sovereignty and popular rule are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the rulings taken by legislatures is that this stipulation has been incorporated – without democratic mandate, and typically amid an atmosphere of extreme secrecy – inside trade treaties.

A Real-World Case: The Cumbrian Coal Mine

Twelve months ago, a conservation group won a great victory at the high court. The justice found that plans to excavate the first deep coalmine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration then withdrew the consent the previous administration had granted. Currently, this legal outcome faces being overturned by an foreign court accountable to only the corporations bringing the case.

Last August, a firm whose ultimate 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 hear it.

This firm is suing the UK for the money it might have made if the mine had been permitted to go ahead. The public has no idea how much this might be. What legal team is serving as its counsel in opposition to the UK administration? A member of parliament, and ex-law officer in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration enacts a policy, the high court supports it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a sitting MP acts on its behalf.

The Russian Case

On the same day that the tribunal on the coalmine case was appointed, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case at present, but it is highly possible that he may employ the ISDS mechanism to contest the sanctions the UK levied against him subsequent to the war in Ukraine. He has filed a claim against a small nation on these grounds, seeking a colossal sum: half that nation's yearly budget. Among the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts believe that the EU’s delay in utilising seized state funds as guarantee for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, undemocratic power over democratic administrations might be preventing the money Ukraine critically depends on.

Misleading Claims and Mounting Threats

We were assured that these scenarios wouldn’t happen. Years ago, a former prime minister, promoting the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade agreement upon trade deal and there has not been a issue in the past.” A consultant on this matter described critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The overall message seemed to be that exclusively weaker states needed to fear these lawsuits. Cautionary notes that “as corporations grasp the authority they now possess, they will shift their focus from the weak nations to the wealthy nations” were dismissed with widespread derision.

That threat has now materialised. In the current period, energy and extraction companies have lodged a unprecedented number of cases against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – state efforts to stop global warming. Firms have to date won $114bn through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That is equivalent to the combined GDP