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What is your understand our system of government works? Perhaps something like this. Citizens choose MPs. They vote on bills. Should a majority is achieved, the bills pass into law. Statutes is upheld by the courts. Simple as that. However, that’s how it operated in the past. Not anymore.

The Advent of Shadow Tribunals

Nowadays, overseas companies, or the oligarchs who own them, have the power to sue elected administrations for the regulations they pass, at private courts staffed by business advocates. Such disputes are held behind closed doors. Unlike our courts, these tribunals provide no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, and neither can our government, including enterprises based in this country. Access is granted exclusively to entities based overseas.

If a tribunal rules that a government measure could harm the corporation’s projected profits, it can award compensation of vast sums, even billions.

This compensation constitute not actual losses but funds the arbitrators conclude the company might otherwise have made. The state may have to rescind the measure. It becomes discouraged from introducing similar legislation in that area, due to the risk of being sued.

A Mechanism Spiralling Out of Control

Historically high figures of cases are being initiated, as corporations observe each other, and investment funds finance suits for a share of a share of the takings. The consequence? National sovereignty and democracy are now prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump national legislation and the decisions made by legislatures is that this provision has been inserted – absent public approval, and often in an atmosphere of total confidentiality – inside trade treaties.

A Real-World Example: The UK Coal Mine

A year ago, environmental campaigners secured a significant win at the senior court. The presiding officer found that plans to open the first new deep coal mine in the UK for three decades, in Cumbria, were illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have no impact on national carbon targets. The incoming administration then withdrew the consent the previous administration had granted. Now, this success faces being overturned by an offshore tribunal answering to no one but the corporations petitioning it.

During August, a corporate entity whose beneficial owners are based in the offshore financial centre lodged a claim against the UK government. Recently a dispute settlement body in the US capital was established to hear it.

The company is litigating against the UK for the money it would have generated if the mine had received permission to proceed. Citizens have no clear indication how much this could amount to. Which individual is acting on its behalf in opposition to the British government? A sitting MP, and ex-law officer in the previous government, the noted patriot the MP. The administration enacts a policy, the domestic court validates it, then a foreign company contests it through an undemocratic arbitration panel, and a sitting MP acts on its behalf.

The Russian Lawsuit

Concurrently that the panel on the coalmine case was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. The public knows scarce of the case at present, but it is highly possible that he will utilise the arbitration process to contest the restrictions the UK imposed on him subsequent to the war in Ukraine. He has filed a claim against Luxembourg on these grounds, seeking sixteen billion dollars: an amount representing half nation's annual revenue. Among the legal team on his side? a prominent lawyer, wife of the previous PM.

Legal experts argue that the EU’s procrastination in leveraging immobilised Russian assets as collateral for its loan to Ukraine stems from apprehension in Brussels that it could be sued in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

False Assurances and Escalating Costs

We were assured that these scenarios wouldn’t happen. Years ago, a senior politician, championing the most significant and hazardous of all such treaties, told us: “The UK has signed trade agreement after trade deal and there has never been a case in the past.” An adviser on this issue labelled critics of “exaggeration … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by ISDS claims. Cautionary notes that “when companies start to realise the authority they’ve been granted, they will redirect their efforts from the weak nations to the strong ones” were met with general mockery.

That prediction has now materialised. Recently, energy and resource corporations have filed a unprecedented number of cases against nations across the economic spectrum, contesting – similar to the Cumbrian coalmine – official measures to prevent climate breakdown. Companies have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP