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How do you perceive our system of government operates? It could be similar to this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Legislation is upheld by the courts. End of story. Well, that used to be how it operated in the past. Not anymore.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, along with the oligarchs that control them, have the power to sue nation states for the laws they pass, at private courts staffed by corporate lawyers. Such disputes are held away from public scrutiny. Unlike our courts, these panels grant no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, nor can our government, or even companies operating from this country. They are open solely for corporations based overseas.

Should an arbitration panel determines that a legislative action could harm the corporation’s expected profits, it can award compensation of vast sums, running into billions.

These awards constitute not real financial harm but money the arbitrators decide the company might otherwise have made. The administration could be forced to rescind the measure. It will be hesitant to passing future laws in that area, due to the risk of facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being filed, as companies observe each other, and private equity bankroll lawsuits for a share of a cut of the awards. The outcome? Sovereignty and democracy are becoming too costly.

The process is called “investor-state dispute settlement” (ISDS). The rationale it can trump a country's own laws and the rulings taken by parliaments is that this clause has been written – without democratic mandate, and often in conditions of profound opacity – inside trade treaties.

A Specific Case: The Cumbrian Coal Mine

A year ago, environmental campaigners secured a significant win at the senior court. The presiding officer determined that proposals to dig the first deep coalmine in the UK for 30 years, in northwest England, had been unlawfully approved by the previous government, which had endorsed the extraordinary assertion that the mine would have no consequence on national carbon targets. The new government later cancelled the permission the Tories had granted. Now, this victory is under threat by an foreign court reporting to exclusively the entities filing the suit.

In August, a firm whose final controllers are based in the offshore financial centre initiated proceedings versus the UK government. Last week a arbitration panel in the United States was convened to adjudicate on it.

The company is litigating against the UK for the money it might have made if the mine had received permission to proceed. We have no idea how much this could amount to. Who is serving as its counsel in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The state makes a decision, the high court validates it, then a international entity challenges it through an unaccountable private court, and a elected official represents its behalf.

A Sanctions Case

Concurrently that the tribunal on the mining lawsuit was appointed, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case to date, but it appears probable that he will utilise the ISDS mechanism to contest the sanctions the UK enacted against him following the invasion of Ukraine. He has filed a claim against Luxembourg for this reason, claiming a colossal sum: half that nation's annual revenue. Among the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

Trade specialists believe that the EU’s delay in using frozen oligarchs' funds as guarantee for its financial support package stems from Belgium’s fear that it could be sued in the secret arbitration panels, under a trade agreement. This remarkable, undemocratic power over sovereign states could be blocking the finance Ukraine critically depends on.

False Assurances and Mounting Costs

The public was told that these scenarios wouldn’t happen. Previously, a senior politician, championing the biggest and most dangerous of all investment pacts, declared: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” An expert on this matter accused critics of “exaggeration … in reality, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states should be concerned by ISDS claims. Cautionary notes that “when companies begin to understand the influence they now possess, they will turn their attention from the poorer states to the wealthy nations” were dismissed with widespread derision.

That warning is now a reality. In the current period, energy and resource corporations have lodged a record number of suits against nations rich and poor, opposing – like the example of the UK mine – official measures to prevent environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That represents the combined GDP