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Can you reckon our political system functions? Maybe along the lines of this. We elect MPs. They debate and pass bills. If a majority is secured, the bills become law. Legislation is maintained by the courts. Simple as that. However, that used to be how it operated in the past. Not anymore.

The Rise of Shadow Tribunals

Today, overseas companies, and the billionaires who own them, can sue elected administrations for the laws they pass, at secret arbitration panels made up of business advocates. Such disputes take place away from public scrutiny. Unlike our courts, these tribunals allow no opportunity to appeal or judicial review. The general public cannot take a case to them, just as our government, including companies based in this country. The door is open solely for businesses registered abroad.

Should an arbitration panel determines that a law or policy may compromise the corporation’s expected profits, it may order damages of vast sums, even billions.

These sums represent not tangible damages but funds the tribunal officials conclude the company might otherwise have made. The government could be forced to drop the legislation. It becomes hesitant to passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being initiated, as firms take cues from each other, and private equity finance suits in return for a share of the awards. The consequence? National sovereignty and democratic governance are now too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can override domestic law and the rulings made by elected bodies is that this clause has been inserted – without public consent, and often in an atmosphere of profound opacity – into trade treaties.

A Specific Example: The Cumbrian Coal Mine

Twelve months ago, a conservation group secured a significant win at the high court. The justice ruled that schemes to open the first deep coalmine in the UK for 30 years, in Cumbria, were illegally sanctioned by the previous government, which had accepted the questionable argument that the mine would have no consequence on our carbon budgets. The Labour government later cancelled the consent the Tories had granted. Now, this legal outcome is under threat by an secret arbitration panel accountable to exclusively the companies petitioning it.

Last August, a firm whose final controllers are based in the Cayman Islands initiated proceedings challenging the UK government. Recently a tribunal in the US capital was established to hear it.

The company is litigating against the UK for the profits it might have made if the mine had been allowed to proceed. The public has no idea how much this sum represents. Which individual is acting on its behalf against the state? A sitting MP, and ex-law officer in the outgoing administration, the noted patriot the MP. The state enacts a policy, the national judiciary upholds it, then a foreign company challenges it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Case

Simultaneously that the panel on the coalmine case was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian oligarch, an oligarch. We know scarce of the case at present, but it is highly possible that he will utilise the ISDS mechanism to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has already started suing another European state on these grounds, demanding a colossal sum: half that state's yearly income. Included in the legal team on his side? a prominent lawyer, married to the previous PM.

International law scholars believe that the EU’s procrastination in leveraging immobilised state funds as collateral for its financial support package is due to Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

False Assurances and Mounting Risks

Politicians promised that such things wouldn’t happen. In 2014, a former prime minister, championing the biggest and most dangerous of all these agreements, stated: “The UK has signed trade agreement upon trade deal and we have never seen a problem in the past.” An expert on this issue described campaigners of “alarmism … in reality, ISDS does not affect the UK much”. The prevailing narrative seemed to be that exclusively weaker states had to worry about such legal actions. Predictions that “when companies start to realise the authority they’ve been granted, they will turn their attention from the vulnerable countries to the developed economies” were met with scepticism.

That prediction has come to pass. Recently, fossil fuel and resource corporations have filed a unprecedented number of cases against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – state efforts to halt global warming. Companies have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP