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How do you perceive our system of government works? Perhaps something like this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills become law. Statutes are enforced by the courts. That's it. Yet, that used to be how it used to work. No longer.

The Rise of Shadow Tribunals

Today, international firms, along with the wealthy individuals behind them, can sue elected administrations for the regulations they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, including businesses operating from this country. The door is open exclusively to businesses operating from foreign soil.

Should an arbitration panel finds that a legislative action may compromise the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, even billions.

These sums constitute not real financial harm but compensation the tribunal officials decide the company might otherwise have made. The administration could be forced to drop the legislation. It is discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being brought, as firms observe each other, and investment funds fund legal actions in return for a cut of the settlements. The outcome? National sovereignty and democracy are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The explanation it can trump a country's own laws and the choices enacted by elected bodies is that this provision has been written – without public consent, and frequently under a climate of profound opacity – within bilateral investment treaties.

A Concrete Example: The Cumbrian Coalmine

Last year, a conservation group won a great victory at the senior court. The presiding officer determined that plans to dig the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine could have no impact on climate commitments. The Labour government subsequently revoked the licence the Tories had approved. Now, this victory is under threat by an foreign court accountable to no one but the entities filing the suit.

During August, a firm whose beneficial owners are based in the tax haven lodged a claim against the UK government. Last week a tribunal in Washington DC was set up to hear it.

The company is litigating against the UK for the revenue it would have generated if the mine had received permission to proceed. We have no clear indication how much this could amount to. Which individual is representing it against the state? An elected representative, and ex-law officer in the previous government, the noted patriot the MP. The government passes a law, the national judiciary validates it, then a overseas corporation challenges it through an undemocratic private court, and a sitting MP works for its behalf.

The Russian Lawsuit

On the same day that the court on the mining lawsuit was established, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. The public knows little of the case to date, but it seems likely that he may employ the tribunal to contest the restrictions the UK imposed on him following the war in Ukraine. He has initiated proceedings against another European state on these grounds, claiming $16bn: equivalent to half of nation's yearly budget. Included in the legal team representing him there? a prominent lawyer, wife of the previous PM.

International law scholars argue that the EU’s hesitation in leveraging immobilised oligarchs' funds as collateral for its financial support package arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This unprecedented, secretive influence over elected governments could be blocking the money Ukraine desperately needs.

Empty Promises and Escalating Threats

Politicians promised that such things could not occur. Previously, a former prime minister, advocating for the largest and riskiest of all these agreements, stated: “The UK has signed trade deal after trade deal and there has never been a problem in the past.” An adviser on this matter labelled critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations had to worry about such legal actions. Predictions that “when companies begin to understand the authority bestowed upon them, they will turn their attention from the weak nations to the developed economies” were dismissed with scepticism.

That prediction is now a reality. This year, oil and gas and resource corporations have lodged a historic level of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to halt environmental catastrophe. Companies have to date won vast sums by using ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That equates to the combined GDP