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How do you reckon our system of government functions? Maybe along the lines of this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills are enacted as law. Statutes is upheld by the courts. End of story. Yet, that was how it once functioned. No longer.

The Advent of Shadow Tribunals

Today, overseas companies, along with the oligarchs that control them, have the power to sue governments for the policies they pass, at private courts made up of commercial attorneys. Such disputes take place in secret. Unlike our courts, these panels grant no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises headquartered in this country. Access is granted exclusively to businesses based overseas.

If a tribunal rules that a government measure may compromise the corporation’s anticipated profits, it can award compensation of hundreds of millions, potentially billions.

These awards represent not tangible damages but funds the arbitrators conclude the company might otherwise have made. The state could be forced to abandon its policy. It becomes discouraged from introducing similar legislation of a similar nature, worried about facing litigation.

A Process Running Rampant

Unprecedented levels of legal actions are being initiated, as firms observe each other, and hedge funds fund legal actions in exchange for a portion of the settlements. The consequence? National sovereignty and democracy are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump national legislation and the choices enacted by elected bodies is that this clause has been incorporated – absent public approval, and frequently under conditions of total confidentiality – into bilateral investment treaties.

A Specific Instance: The UK Coalmine

A year ago, activists won a great victory at the high court. The justice determined that proposals to dig the first new deep coal mine in the UK for 30 years, in northwest England, had been wrongly permitted by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on national carbon targets. The new government subsequently revoked the licence the previous administration had granted. Currently, this victory faces being overturned by an secret arbitration panel accountable to no one but the corporations petitioning it.

In August, a corporate entity whose beneficial owners reside in the Cayman Islands lodged a claim against the UK government. Last week a tribunal in Washington DC was set up to hear it.

This firm is litigating against the UK for the revenue it might have made if the mine had received permission to commence operations. The public has no clear indication how much this could amount to. Who is representing it challenging the British government? An elected representative, and former attorney-general in the outgoing administration, that great patriot the MP. The government enacts a policy, the high court validates it, then a foreign company contests it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

The Russian Case

Simultaneously that the court on the coal mine dispute was established, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. The public knows little of the case so far, but it seems likely that he’ll use the tribunal to challenge the sanctions the UK enacted against him after the war in Ukraine. He has initiated proceedings against a small nation on these grounds, seeking a colossal sum: half that state's annual revenue. Among the counsel acting for him in that case? the wife of a former prime minister, spouse of the ex-UK leader.

Legal experts believe that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, secretive influence over elected governments may be obstructing the finance Ukraine urgently requires.

Empty Promises and Mounting Costs

We were assured that these scenarios wouldn’t happen. Previously, a senior politician, championing the largest and riskiest of all such treaties, told us: “We’ve signed trade agreement upon trade deal and there has not been a issue in the past.” A consultant on this issue labelled campaigners of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message was crafted to be that solely developing countries had to worry about these lawsuits. Warnings that “as corporations start to realise the authority they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were met with general mockery.

That warning has now materialised. Recently, fossil fuel and mining firms have filed a historic level of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – official measures to prevent environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP