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What is your perceive our system of government works? It could be similar to this. The public votes for MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Statutes are enforced by the courts. Simple as that. Yet, that’s how it once functioned. No longer.

The Emergence of Shadow Tribunals

In the modern era, foreign corporations, along with the wealthy individuals who own them, are able to litigate against nation states for the policies they pass, at offshore tribunals composed of corporate lawyers. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels grant no avenue for appeal or legal review. You or I are unable to file a case to them, and neither can our government, or even businesses operating from this country. Access is granted only to businesses based overseas.

Should an arbitration panel finds that a legislative action might diminish the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, even billions.

These awards constitute not real financial harm but compensation the tribunal officials determine the company would perhaps have made. The state may have to drop the legislation. It is discouraged from passing future laws of a similar nature, worried about facing litigation.

A System Spiralling Out of Control

Record numbers of legal actions are being filed, as firms learn from each other, and private equity fund legal actions in return for a cut of the settlements. The outcome? Democratic sovereignty and popular rule are becoming unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is permitted to trump national legislation and the choices enacted by elected bodies is that this provision has been written – absent public approval, and often in a climate of profound opacity – into trade treaties.

A Real-World Instance: The Cumbrian Coalmine

Twelve months ago, activists won a great victory at the high court. The judge found that proposals to dig the first major coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had accepted the questionable argument that the mine would have zero effect on national carbon targets. The incoming administration then withdrew the permission the former government had issued. Now, this legal outcome is under threat by an foreign court reporting to no one but the corporations bringing the case.

During August, a firm whose ultimate owners reside in the tax haven filed a lawsuit challenging the UK government. Recently a dispute settlement body in the United States was convened to hear it.

The claimant is suing the UK for the revenue it would have generated if the mine had been permitted to go ahead. Citizens have little idea how much this might be. What legal team is representing it against the British government? An elected representative, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The government passes a law, the high court upholds it, then a foreign company challenges it through an secretive arbitration panel, and a elected official works for its behalf.

The Russian Case

On the same day that the tribunal on the coalmine case was established, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case at present, but it is highly possible that he’ll use the arbitration process to challenge the restrictions the UK levied against him following the invasion of Ukraine. He has already initiated proceedings against another European state for this reason, claiming sixteen billion dollars: an amount representing half nation's yearly budget. Among the counsel acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

International law scholars argue that the EU’s hesitation in utilising seized Russian assets as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations may be obstructing the money Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that these scenarios wouldn’t happen. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, declared: “The UK has signed investment treaty upon trade deal and there has never been a problem in the past.” An expert on this matter labelled critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “once firms grasp the influence they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by widespread derision.

That threat is now a reality. Recently, oil and gas and extraction companies have initiated a unprecedented number of suits against nations across the economic spectrum, contesting – like the example of the Whitehaven project – government attempts to stop climate breakdown. Corporations have to date won $114bn through ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP