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How do you perceive our system of government operates? Maybe something like this. We elect MPs. They debate and pass bills. When a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. That's it. Yet, that was how it operated in the past. Those days are over.

The Rise of Shadow Tribunals

Nowadays, international firms, along with the billionaires behind them, are able to litigate against governments for the laws they pass, at private courts made up of commercial attorneys. Such disputes are conducted away from public scrutiny. In contrast to domestic courts, these panels provide no opportunity to appeal or judicial review. Ordinary citizens cannot take a case to them, nor can our government, or even companies based in this country. The door is open exclusively to corporations based overseas.

If a tribunal finds that a government measure might diminish the corporation’s expected profits, it may order damages of hundreds of millions of pounds, running into billions.

This compensation represent not actual losses but funds the arbitrators determine the company would perhaps have made. The state may have to rescind the measure. It will be hesitant to passing future laws of a similar nature, due to the risk of facing litigation.

A Process Running Rampant

Unprecedented levels of disputes are being filed, as firms learn from each other, and private equity fund legal actions in exchange for a share of the settlements. The consequence? National sovereignty and popular rule are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the choices enacted by legislatures is that this clause has been written – without public consent, and often in a climate of extreme secrecy – into trade treaties.

A Real-World Instance: The UK Coal Mine

Twelve months ago, a conservation group won a great victory at the High Court. The judge determined that plans to dig the first major coal mine in the UK for a generation, in northwest England, had been illegally sanctioned by the outgoing administration, which had agreed to the extraordinary assertion that the mine would have zero effect on our carbon budgets. The incoming administration then withdrew the permission the Tories had issued. Now, this legal outcome could be compromised by an secret arbitration panel accountable to no one but the corporations bringing the case.

During August, a company whose beneficial owners reside in the tax haven filed a lawsuit challenging the UK government. Recently a arbitration panel in the United States was established to consider the case.

The company is seeking compensation from the UK for the money it would have generated if the mine had been allowed to commence operations. We have no clear indication how much this might be. Who is serving as its counsel in opposition to the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot the MP. The state passes a law, the high court upholds it, then a overseas corporation disputes it through an secretive offshore tribunal, and a elected official works for its behalf.

An Oligarch's Case

On the same day that the tribunal on the coal mine dispute was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case at present, but it seems likely that he will utilise the arbitration process to fight the restrictions the UK enacted against him subsequent to the war in Ukraine. He has already filed a claim against a small nation with similar intent, seeking a colossal sum: equivalent to half of state's annual revenue. Part of the counsel acting for him in that case? Cherie Blair, married to the former British prime minister.

Legal experts argue that the EU’s hesitation in utilising seized state funds as collateral for its loan to Ukraine is due to apprehension in Brussels that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, undemocratic power over democratic administrations might be preventing the money Ukraine urgently requires.

False Assurances and Mounting Risks

Politicians promised that these events wouldn’t happen. Years ago, a government leader, championing the biggest and most dangerous of all investment pacts, declared: “The UK has signed trade agreement after trade deal and there has not been a case in the past.” An adviser on this topic labelled activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that exclusively weaker states had to worry about these lawsuits. Cautionary notes that “when companies begin to understand the power they now possess, they will redirect their efforts from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That warning is now a reality. Recently, fossil fuel and extraction companies have initiated a unprecedented number of claims against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – state efforts to stop global warming. Companies have so far won vast sums by using ISDS, of which energy giants have secured $84bn. That equates to the combined GDP