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How do you reckon our system of government operates? It could be similar to this. Citizens choose MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Statutes is maintained by the courts. End of story. However, that’s how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

In the modern era, overseas companies, and the wealthy individuals who own them, are able to litigate against governments for the laws they pass, at offshore tribunals made up of corporate lawyers. Such disputes are held away from public scrutiny. Unlike our courts, these tribunals provide no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, or even enterprises headquartered in this country. Access is granted exclusively to corporations operating from foreign soil.

When a secret court finds that a law or policy might diminish the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, running into billions.

This compensation represent not real financial harm but compensation the tribunal officials decide the company might otherwise have made. The state could be forced to drop the legislation. It is hesitant to enacting future policies along the same lines, for fear of facing litigation.

A Mechanism Growing Exponentially

Historically high figures of legal actions are being initiated, as firms learn from each other, and investment funds fund legal actions in exchange for a cut of the settlements. The result? National sovereignty and popular rule are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to override a country's own laws and the decisions taken by elected bodies is that this stipulation has been written – without democratic mandate, and frequently under a climate of total confidentiality – into bilateral investment treaties.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, activists won a great victory at the High Court. The judge found that schemes to open the first new deep coal mine in the UK for 30 years, in northwest England, were unlawfully approved by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no consequence on our carbon budgets. The Labour government subsequently revoked the licence the former government had granted. Now, this success faces being overturned by an offshore tribunal accountable to exclusively the corporations petitioning it.

In August, a corporate entity whose ultimate owners reside in the tax haven filed a lawsuit challenging the UK government. The previous week a tribunal in the United States was convened to hear it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to commence operations. The public has no clear indication how much this might be. Who is serving as its counsel challenging the state? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the domestic court upholds it, then a international entity disputes it through an unaccountable private court, and a elected official represents its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was established, information emerged from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case so far, but it seems likely that he will utilise the tribunal to contest the restrictions the UK levied against him following the invasion of Ukraine. He has previously initiated proceedings against a small nation with similar intent, demanding $16bn: half that government’s annual revenue. Among the lawyers on his side? the wife of a former prime minister, married to the former British prime minister.

Trade specialists believe that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its aid for Ukraine is due to Belgium’s fear that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, secretive influence over sovereign states may be obstructing the finance Ukraine urgently requires.

False Assurances and Mounting Risks

We were assured that such things could not occur. Years ago, a former prime minister, advocating for the most significant and hazardous of all these agreements, told us: “The UK has signed trade deal upon trade deal and there has not been a issue in the past.” An adviser on this issue accused activists of “scaremongering … the fact is, ISDS barely touches the UK much”. The prevailing narrative seemed to be that exclusively weaker states should be concerned by such legal actions. Predictions that “as corporations begin to understand the power bestowed upon them, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by general mockery.

That warning has come to pass. In the current period, energy and mining firms have initiated a historic level of claims against nations rich and poor, contesting – like the example of the UK mine – government attempts to stop environmental catastrophe. Firms have thus far won $114bn by using ISDS, of which oil majors have obtained $84bn. That represents the combined GDP