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How do you perceive our political system operates? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills are enacted as law. The law are enforced by the courts. That's it. Yet, that used to be how it used to work. Those days are over.

The Advent of Shadow Tribunals

Today, international firms, or the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at secret arbitration panels staffed by commercial attorneys. The cases are held behind closed doors. Differing from national judiciaries, these tribunals provide no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, including businesses based in this country. They are open only to entities operating from foreign soil.

If a tribunal rules that a legislative action may compromise the corporation’s projected profits, it may order damages of hundreds of millions, running into billions.

This compensation represent not actual losses but funds the tribunal officials determine the company would perhaps have made. The government might be compelled to abandon its policy. It will be deterred from passing future laws of a similar nature, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being brought, as corporations take cues from each other, and hedge funds finance suits in return for a share of the awards. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override national legislation and the decisions made by legislatures is that this provision has been inserted – without democratic mandate, and often in conditions of total confidentiality – into international trade agreements.

A Real-World Case: The Cumbrian Coalmine

Twelve months ago, environmental campaigners won a great victory at the High Court. The judge ruled that plans to dig the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had agreed to the questionable argument that the mine could have zero effect on climate commitments. The new government later cancelled the consent the previous administration had approved. Currently, this victory faces being overturned by an foreign court accountable to only the corporations bringing the case.

Last August, a company whose beneficial owners reside in the tax haven filed a lawsuit versus the UK government. Last week a dispute settlement body in Washington DC was set up to consider the case.

The claimant is suing the UK for the money it would have generated if the mine had been allowed to go ahead. Citizens have no idea how much this might be. What legal team is acting on its behalf challenging the UK administration? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Geoffrey Cox. The state makes a decision, the high court upholds it, then a overseas corporation disputes it through an secretive private court, and a member of our parliament represents its behalf.

The Russian Lawsuit

Concurrently that the panel on the coal mine dispute was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. We know little of the case to date, but it seems likely that he’ll use the ISDS mechanism to challenge the sanctions the UK imposed on him following the Russian aggression. He has initiated proceedings against another European state for this reason, claiming a colossal sum: an amount representing half government’s yearly budget. Among the counsel representing him there? Cherie Blair, wife of the previous PM.

International law scholars believe that the EU’s procrastination in using frozen oligarchs' funds as collateral for its aid for Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over elected governments could be blocking the finance Ukraine desperately needs.

Empty Promises and Escalating Threats

We were assured that such things were not possible. Previously, a senior politician, advocating for the biggest and most dangerous of all such treaties, declared: “We’ve signed investment treaty after trade deal and we have never seen a case in the past.” An adviser on this topic labelled campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression appeared to be that only poorer nations needed to fear these lawsuits. Warnings that “when companies grasp the power they now possess, they will turn their attention from the weak nations to the wealthy nations” were dismissed with widespread derision.

That warning has come to pass. Recently, fossil fuel and resource corporations have lodged a record number of cases against nations rich and poor, contesting – similar to the UK mine – official measures to prevent global warming. Firms have to date won vast sums via ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That is equivalent to the combined GDP