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What is your perceive our system of government functions? Perhaps something like this. Citizens choose MPs. They debate and pass bills. Should a majority is obtained, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. Well, that’s how it once functioned. Not anymore.

The Emergence of Shadow Tribunals

Today, international firms, along with the wealthy individuals behind them, are able to litigate against nation states for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes are conducted in secret. Differing from national judiciaries, these bodies allow no right of appeal or oversight by judges. The general public cannot take a case to them, just as our government, or even companies based in this country. The door is open only to corporations operating from foreign soil.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it can award damages of hundreds of millions of pounds, running into billions.

These sums are based not on real financial harm but funds the tribunal officials determine the company might otherwise have made. The administration might be compelled to rescind the measure. It is discouraged from passing future laws along the same lines, due to the risk of being sued.

A System Spiralling Out of Control

Record numbers of disputes are being filed, as firms learn from each other, and private equity finance suits in exchange for a share of the takings. The outcome? National sovereignty and democracy are turning into too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the choices taken by parliaments is that this stipulation has been written – without public consent, and typically amid a climate of profound opacity – inside international trade agreements.

A Real-World Case: The Cumbrian Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the High Court. The judge found that proposals to excavate the first deep coalmine in the UK for a generation, in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the extraordinary assertion that the mine could have no impact on our carbon budgets. The new government then withdrew the licence the previous administration had approved. Now, this legal outcome faces being overturned by an foreign court accountable to only the companies filing the suit.

During August, a corporate entity whose final controllers reside in the offshore financial centre initiated proceedings against the UK government. Recently a dispute settlement body in the US capital was set up to consider the case.

The claimant is seeking compensation from the UK for the profits it might have made if the mine had been allowed to commence operations. We have little idea how much this sum represents. Which individual is representing it in opposition to the British government? A member of parliament, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The state makes a decision, the domestic court validates it, then a international entity challenges it through an secretive private court, and a sitting MP works for its behalf.

A Sanctions Lawsuit

On the same day that the tribunal on the coal mine dispute was established, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case at present, but it appears probable that he’ll use the tribunal to contest the penalties the UK levied against him subsequent to the war in Ukraine. He has previously filed a claim against another European state on these grounds, seeking a colossal sum: an amount representing half state's annual revenue. Among the legal team acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in utilising seized oligarchs' funds as security for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations could be blocking the funds Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that these events were not possible. In 2014, a senior politician, championing the largest and riskiest of all investment pacts, told us: “Britain has agreed to trade agreement after trade deal and there has not been a problem in the past.” An adviser on this matter accused activists of “exaggeration … the truth is, ISDS does not affect the UK much”. The overall message appeared to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “once firms begin to understand the authority bestowed upon them, they will shift their focus from the poorer states to the developed economies” were met with scepticism.

That threat has come to pass. Recently, energy and mining firms have initiated a historic level of claims against nations rich and poor, contesting – as in the case of the Whitehaven project – official measures to halt environmental catastrophe. Firms have thus far won vast sums by using ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP