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How do you understand our political system functions? Perhaps something like this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills pass into law. The law is upheld by the courts. End of story. Well, that was how it operated in the past. No longer.

The Advent of Shadow Tribunals

In the modern era, international firms, along with the wealthy individuals who own them, can sue nation states for the policies they pass, at secret arbitration panels staffed by business advocates. Such disputes are held in secret. Unlike our courts, these bodies grant no right of appeal or judicial review. You or I cannot take a case to them, just as our government, or even companies based in this country. They are open only to businesses operating from foreign soil.

If a tribunal finds that a government measure may compromise the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions, even billions.

These sums represent not actual losses but compensation the panel members decide the company might otherwise have made. The administration might be compelled to rescind the measure. It is deterred from enacting future policies in that area, worried about being sued.

A System Running Rampant

Unprecedented levels of cases are being brought, as companies learn from each other, and hedge funds finance suits in return for a share of the awards. The consequence? Democratic sovereignty and democratic governance are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the choices taken by elected bodies is that this provision has been inserted – without public consent, and often in a climate of total confidentiality – inside trade treaties.

A Real-World Instance: The UK Coalmine

Last year, a conservation group won a great victory at the high court. The justice ruled that proposals to excavate the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no consequence on climate commitments. The Labour government then withdrew the permission the former government had granted. Now, this legal outcome is under threat by an offshore tribunal reporting to no one but the entities bringing the case.

Last August, a corporate entity whose ultimate owners reside in the offshore financial centre lodged a claim against the UK government. Last week a arbitration panel in Washington DC was convened to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to go ahead. We have no idea how much this sum represents. What legal team is representing it challenging the British government? A sitting MP, and ex-law officer in the outgoing administration, that great patriot Geoffrey Cox. The administration enacts a policy, the high court upholds it, then a international entity challenges it through an undemocratic offshore tribunal, and a elected official represents its behalf.

The Russian Case

On the same day that the court on the coalmine case was established, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are scarce of the case to date, but it appears probable that he may employ the arbitration process to fight the sanctions the UK enacted against him after the invasion of Ukraine. He has already started suing another European state for this reason, claiming a colossal sum: an amount representing half state's yearly budget. Part of the counsel representing him there? the wife of a former prime minister, spouse of the former British prime minister.

Legal experts argue that the EU’s hesitation in using frozen Russian assets as collateral for its financial support package arises from apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over elected governments may be obstructing the finance Ukraine desperately needs.

Misleading Claims and Growing Risks

The public was told that these events wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all investment pacts, stated: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” A consultant on this issue accused activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations should be concerned by these lawsuits. Cautionary notes that “when companies grasp the authority they now possess, they will turn their attention from the vulnerable countries to the developed economies” were dismissed with general mockery.

That warning has now materialised. Recently, oil and gas and resource corporations have filed a historic level of cases against nations rich and poor, contesting – similar to the Cumbrian coalmine – government attempts to prevent global warming. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP