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Can you perceive our political system operates? It could be something like this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. That's it. However, that used to be how it once functioned. No longer.

The Advent of Shadow Tribunals

In the modern era, international firms, or the wealthy individuals behind them, have the power to sue governments for the laws they pass, at offshore tribunals composed of commercial attorneys. These proceedings are conducted in secret. Unlike our courts, these tribunals grant no avenue for appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even enterprises based in this country. Access is granted exclusively to entities operating from foreign soil.

When a secret court rules that a legislative action may compromise the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, even billions.

This compensation are based not on real financial harm but funds the arbitrators determine the company could potentially have made. The government may have to drop the legislation. It becomes discouraged from introducing similar legislation in that area, due to the risk of incurring a lawsuit.

A Mechanism Growing Exponentially

Record numbers of cases are being initiated, as corporations take cues from each other, and hedge funds finance suits in exchange for a portion of the awards. The result? Democratic sovereignty and popular rule are turning into too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it can supersede national legislation and the rulings enacted by legislatures is that this clause has been incorporated – without public consent, and typically amid an atmosphere of profound opacity – inside trade treaties.

A Real-World Case: The UK Coal Mine

A year ago, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that schemes to excavate the first deep coalmine in the UK for 30 years, at Whitehaven in Cumbria, had been illegally sanctioned by the Conservative government, which had endorsed the bizarre claim that the mine could have zero effect on climate commitments. The Labour government then withdrew the permission the former government had issued. Today, this victory could be compromised by an offshore tribunal reporting to only the entities filing the suit.

During August, a firm whose beneficial owners are based in the tax haven lodged a claim challenging the UK government. The previous week a arbitration panel in the United States was convened to adjudicate on it.

The company is suing the UK for the profits it might have made if the mine had received permission to proceed. Citizens have little idea how much this might be. Which individual is representing it in opposition to the state? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a overseas corporation contests it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

The Russian Lawsuit

Concurrently that the tribunal on the mining lawsuit was established, it was revealed from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows nothing of the case so far, but it appears probable that he will utilise the arbitration process to challenge the penalties the UK enacted against him subsequent to the war in Ukraine. He has already filed a claim against a small nation with similar intent, demanding a colossal sum: equivalent to half of nation's yearly income. Part of the lawyers representing him there? a prominent lawyer, married to the previous PM.

International law scholars believe that the EU’s delay in leveraging immobilised Russian assets as collateral for its loan to Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over democratic administrations may be obstructing the money Ukraine urgently requires.

Empty Promises and Escalating Threats

We were assured that such things wouldn’t happen. In 2014, a former prime minister, promoting the most significant and hazardous of all such treaties, stated: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” An adviser on this matter accused critics of “alarmism … in reality, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries had to worry about ISDS claims. Warnings that “when companies begin to understand the influence they now possess, they will shift their focus from the vulnerable countries to the strong ones” were met with scepticism.

That prediction has now materialised. This year, fossil fuel and extraction companies have filed a record number of suits against nations both wealthy and developing, opposing – like the example of the UK mine – government attempts to stop global warming. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which oil majors have obtained $84bn. That equates to the combined GDP