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What is your perceive our system of government functions? Maybe similar to this. The public votes for MPs. They legislate on bills. If a majority is achieved, the bills pass into law. The law are enforced by the courts. End of story. Yet, that used to be how it used to work. Those days are over.

The Advent of Shadow Tribunals

In the modern era, overseas companies, or the billionaires that control them, have the power to sue nation states for the policies they pass, at secret arbitration panels composed of commercial attorneys. These proceedings take place behind closed doors. Unlike our courts, these bodies provide no avenue for appeal or judicial review. Ordinary citizens are unable to file a case to them, and neither can our government, or even companies operating from this country. The door is open exclusively to corporations registered abroad.

If a tribunal determines that a government measure could harm the corporation’s expected profits, it has the power to grant damages of hundreds of millions, even billions.

These awards constitute not tangible damages but compensation the panel members decide the company might otherwise have made. The government may have to rescind the measure. It becomes deterred from introducing similar legislation of a similar nature, due to the risk of incurring a lawsuit.

A System Growing Exponentially

Unprecedented levels of legal actions are being brought, as corporations learn from each other, and hedge funds bankroll lawsuits in return for a share of the takings. The result? Democratic sovereignty and popular rule are becoming unaffordable.

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 inserted – without democratic mandate, and typically amid a climate of extreme secrecy – within bilateral investment treaties.

A Specific Example: The Whitehaven Coalmine

Last year, a conservation group achieved a major legal triumph at the high court. The presiding officer ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have no impact on our carbon budgets. The new government later cancelled the licence the previous administration had issued. Now, this legal outcome faces being overturned by an offshore tribunal answering to exclusively the companies bringing the case.

Last August, a firm whose beneficial owners reside in the Cayman Islands filed a lawsuit challenging the UK government. Last week a tribunal in the United States was set up to consider the case.

The company is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. What legal team is representing it against the UK administration? An elected representative, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the domestic court validates it, then a international entity contests it through an unaccountable offshore tribunal, and a sitting MP acts on its behalf.

A Sanctions Challenge

Simultaneously that the court on the coalmine case was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows nothing of the case at present, but it seems likely that he’ll use the ISDS mechanism to fight the restrictions the UK imposed on him subsequent to the Russian aggression. He has started suing Luxembourg on these grounds, demanding a colossal sum: an amount representing half state's yearly income. Among the legal team on his side? the wife of a former prime minister, spouse of the former British prime minister.

Trade specialists argue that the EU’s delay in utilising seized oligarchs' funds as security for its financial support package stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the funds Ukraine desperately needs.

Empty Promises and Growing Costs

We were assured that these scenarios could not occur. Years ago, a senior politician, promoting the largest and riskiest of all investment pacts, stated: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” An expert on this matter described campaigners of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries should be concerned by ISDS claims. Predictions that “when companies grasp the authority they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with scepticism.

That threat is now a reality. This year, energy and resource corporations have filed a historic level of suits against nations both wealthy and developing, contesting – as in the case of the UK mine – government attempts to stop environmental catastrophe. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained $84bn. That represents the combined GDP