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How do you perceive our system of government functions? Maybe along the lines of this. We elect MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. Legislation is maintained by the courts. That's it. Yet, that used to be how it once functioned. Not anymore.

The Emergence of Shadow Tribunals

Today, overseas companies, or the wealthy individuals that control them, have the power to sue governments for the laws they pass, at secret arbitration panels composed of commercial attorneys. The cases take place behind closed doors. In contrast to domestic courts, these panels allow no opportunity to appeal or legal review. You or I are barred from bringing a case to them, just as our government, or even companies based in this country. They are open only to businesses based overseas.

Should an arbitration panel finds that a law or policy might diminish the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, even billions.

This compensation represent not real financial harm but funds the arbitrators determine the company would perhaps have made. The government could be forced to rescind the measure. It is hesitant to enacting future policies along the same lines, worried about facing litigation.

A Process Running Rampant

Unprecedented levels of cases are being initiated, as corporations observe each other, and private equity fund legal actions for a share of a cut of the settlements. The consequence? Sovereignty and democracy are becoming too costly.

The system is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the choices enacted by elected bodies is that this stipulation has been inserted – absent public approval, and typically amid an atmosphere of extreme secrecy – within trade treaties.

A Real-World Case: The Whitehaven Coalmine

A year ago, activists secured a significant win at the high court. The presiding officer ruled that proposals to dig the first deep coalmine in the UK for a generation, in northwest England, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration later cancelled the consent the previous administration had issued. Now, this legal outcome could be compromised by an foreign court reporting to no one but the corporations filing the suit.

In August, a corporate entity whose final controllers reside in the tax haven filed a lawsuit against the UK government. Last week a dispute settlement body in the United States was convened to hear it.

The company is litigating against the UK for the revenue it would have generated if the mine had been allowed to commence operations. The public has no idea how much this sum represents. Who is acting on its behalf against the UK administration? An elected representative, and ex-law officer in the Conservative government, that great patriot the MP. The state enacts a policy, the domestic court validates it, then a foreign company contests it through an secretive arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Case

On the same day that the panel on the coalmine case was established, it was revealed from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case to date, but it appears probable that he will utilise the tribunal to challenge the restrictions the UK enacted against him after the invasion of Ukraine. He has already initiated proceedings against Luxembourg with similar intent, demanding $16bn: half that state's yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, spouse of the previous PM.

Legal experts argue that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its financial support package is due to Belgium’s fear that it could be sued in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Growing Costs

We were assured that these events could not occur. Years ago, a government leader, championing the largest and riskiest of all investment pacts, stated: “Britain has agreed to investment treaty upon trade deal and we have never seen a problem in the past.” An expert on this matter described critics of “scaremongering … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that exclusively weaker states had to worry about these lawsuits. Warnings that “once firms grasp the authority they’ve been granted, they will shift their focus from the weak nations to the strong ones” were greeted by general mockery.

That warning is now a reality. In the current period, fossil fuel and resource corporations have initiated a historic level of claims against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – official measures to halt environmental catastrophe. Corporations have thus far won $114bn by using ISDS, of which oil majors have obtained the majority. That is equivalent to the combined GDP