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How do you perceive our political system operates? Maybe something like this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Statutes are enforced by the courts. End of story. Well, that used to be how it operated in the past. Those days are over.

The Rise of Shadow Tribunals

Nowadays, foreign corporations, or the oligarchs who own them, can sue governments for the policies they pass, at offshore tribunals staffed by business advocates. Such disputes are held behind closed doors. Unlike our courts, these panels grant no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, or even businesses headquartered in this country. They are open solely for corporations based overseas.

When a secret court finds that a legislative action could harm the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, potentially billions.

These awards represent not real financial harm but money the arbitrators decide the company might otherwise have made. The state might be compelled to rescind the measure. It will be hesitant to introducing similar legislation along the same lines, worried about incurring a lawsuit.

A Process Growing Exponentially

Unprecedented levels of cases are being initiated, as firms observe each other, and private equity finance suits in return for a portion of the awards. The result? National sovereignty and democratic governance are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the decisions enacted by parliaments is that this clause has been written – without democratic mandate, and typically amid conditions of profound opacity – into bilateral investment treaties.

A Concrete Example: The Whitehaven Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer ruled that proposals to open the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had accepted the questionable argument that the mine would have had no consequence on climate commitments. The Labour government then withdrew the consent the Tories had approved. Now, this success faces being overturned by an foreign court reporting to exclusively the corporations petitioning it.

Last August, a corporate entity whose ultimate owners reside in the Cayman Islands filed a lawsuit against the UK government. Last week a arbitration panel in the United States was established to consider the case.

The claimant is seeking compensation from the UK for the money it would have generated if the mine had been allowed to commence operations. We have little idea how much this could amount to. What legal team is acting on its behalf in opposition to the UK administration? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot Geoffrey Cox. The administration enacts a policy, the domestic court supports it, then a foreign company contests it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

An Oligarch's Challenge

On the same day that the court on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case so far, but it seems likely that he will utilise the arbitration process to fight the restrictions the UK levied against him following the invasion of Ukraine. He has started suing Luxembourg for this reason, seeking $16bn: equivalent to half of government’s yearly budget. Among the counsel representing him there? a prominent lawyer, wife of the previous PM.

Legal experts argue that the EU’s procrastination in using frozen state funds as guarantee for its loan to Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over democratic administrations might be preventing the finance Ukraine urgently requires.

False Assurances and Growing Costs

Politicians promised that such things were not possible. Years ago, a government leader, championing the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” A consultant on this topic accused campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that solely developing countries should be concerned by such legal actions. Warnings that “once firms begin to understand the influence bestowed upon them, they will shift their focus from the weak nations to the wealthy nations” were met with general mockery.

That warning has now materialised. This year, oil and gas and extraction companies have lodged a historic level of suits against nations rich and poor, challenging – similar to the UK mine – government attempts to halt climate breakdown. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP