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How do you reckon our system of government operates? Perhaps something like this. Citizens choose MPs. They legislate on bills. When a majority is achieved, the bills pass into law. The law are enforced by the courts. That's it. However, that was how it operated in the past. Not anymore.

The Emergence of Shadow Tribunals

Nowadays, international firms, or the oligarchs that control them, are able to litigate against governments for the policies they pass, at private courts composed of business advocates. The cases are held behind closed doors. Unlike our courts, these bodies provide no right of appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even enterprises headquartered in this country. Access is granted solely for entities registered abroad.

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

This compensation represent not actual losses but compensation the arbitrators determine the company would perhaps have made. The state could be forced to abandon its policy. It is discouraged from introducing similar legislation in that area, for fear of being sued.

A System Spiralling Out of Control

Unprecedented levels of legal actions are being filed, as companies learn from each other, and hedge funds bankroll lawsuits in exchange for a portion of the awards. The consequence? Democratic sovereignty and popular rule are becoming too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump domestic law and the choices made by parliaments is that this clause has been incorporated – without public consent, and often in an atmosphere of extreme secrecy – into bilateral investment treaties.

A Specific Instance: The Whitehaven Coal Mine

A year ago, a conservation group secured a significant win at the High Court. The justice ruled that plans to dig the first new deep coal mine in the UK for a generation, in northwest England, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine would have had zero effect on climate commitments. The incoming administration later cancelled the permission the Tories had issued. Now, this legal outcome is under threat by an offshore tribunal answering to only the corporations bringing the case.

During August, a firm whose final controllers are located in the Cayman Islands initiated proceedings challenging the UK government. Last week a dispute settlement body in Washington DC was convened to hear it.

The claimant is suing the UK for the revenue it would have generated if the mine had received permission to proceed. The public has no clear indication how much this might be. Who is serving as its counsel against the British government? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration passes a law, the high court validates it, then a foreign company challenges it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

Simultaneously that the panel on the mining lawsuit was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know scarce of the case so far, but it seems likely that he’ll use the arbitration process to fight the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has already started suing a small nation for this reason, claiming sixteen billion dollars: equivalent to half of government’s annual revenue. Included in the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

Legal experts contend that the EU’s procrastination in utilising seized state funds as security for its financial support package arises from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This remarkable, undemocratic power over elected governments may be obstructing the money Ukraine desperately needs.

Misleading Claims and Mounting Threats

The public was told that these scenarios were not possible. Previously, a government leader, championing the most significant and hazardous of all investment pacts, declared: “We’ve signed trade deal upon trade deal and there has not been a issue in the past.” A consultant on this matter described critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “once firms grasp the power they now possess, they will shift their focus from the weak nations to the strong ones” were met with widespread derision.

That prediction is now a reality. Recently, energy and resource corporations have filed a record number of suits against nations both wealthy and developing, opposing – similar to the UK mine – state efforts to prevent global warming. Corporations have thus far won $114bn via ISDS, of which energy giants have obtained the majority. That represents the combined GDP