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What is your understand our system of government works? Maybe something like this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills pass into law. Statutes is upheld by the courts. End of story. However, that used to be how it used to work. No longer.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, and the wealthy individuals who own them, can sue nation states for the policies they pass, at private courts composed of commercial attorneys. These proceedings are held in secret. Unlike our courts, these bodies provide no avenue for appeal or judicial review. You or I cannot take a case to them, just as our government, or even businesses headquartered in this country. The door is open only to entities registered abroad.

Should an arbitration panel rules that a law or policy might diminish the corporation’s anticipated profits, it can award compensation of vast sums, running into billions.

This compensation represent not actual losses but funds the panel members conclude the company would perhaps have made. The state could be forced to rescind the measure. It is hesitant to introducing similar legislation of a similar nature, due to the risk of incurring a lawsuit.

A Process Growing Exponentially

Historically high figures of cases are being initiated, as companies learn from each other, and hedge funds bankroll lawsuits in return for a portion of the takings. The consequence? Sovereignty and democratic governance are turning into unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the choices made by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under a climate of extreme secrecy – into bilateral investment treaties.

A Real-World Case: The Whitehaven Coal Mine

Twelve months ago, a conservation group secured a significant win at the High Court. The presiding officer found that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, had been wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine would have zero effect on our carbon budgets. The new government then withdrew the licence the former government had approved. Today, this legal outcome faces being overturned by an offshore tribunal accountable to no one but the entities bringing the case.

In August, a corporate entity whose beneficial owners reside in the Cayman Islands initiated proceedings against the UK government. Last week a dispute settlement body in the United States was established to hear it.

This firm is seeking compensation from the UK for the profits it might have made if the mine had been allowed to go ahead. Citizens have no idea how much this might be. Who is acting on its behalf against the state? A member of parliament, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The government enacts a policy, the national judiciary upholds it, then a overseas corporation contests it through an secretive offshore tribunal, and a elected official works for its behalf.

An Oligarch's Lawsuit

Concurrently that the court on the coalmine case was appointed, we learned from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. Details are little of the case so far, but it is highly possible that he will utilise the tribunal to challenge the restrictions the UK imposed on him following the war in Ukraine. He has initiated proceedings against another European state with similar intent, claiming a colossal sum: half that state's annual revenue. Part of the legal team acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Legal experts believe that the EU’s delay in leveraging immobilised state funds as collateral for its financial support package stems from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over sovereign states could be blocking the money Ukraine critically depends on.

False Assurances and Escalating Threats

Politicians promised that such things were not possible. Years ago, a senior politician, championing the most significant and hazardous of all such treaties, declared: “The UK has signed trade deal after trade deal and there has never been a issue in the past.” A consultant on this topic labelled activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by ISDS claims. Predictions that “when companies start to realise the influence they’ve been granted, they will shift their focus from the vulnerable countries to the strong ones” were greeted by scepticism.

That warning is now a reality. In the current period, energy and extraction companies have initiated a record number of claims against nations both wealthy and developing, opposing – as in the case of the UK mine – official measures to prevent global warming. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained the majority. That equates to the combined GDP