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Can you reckon our system of government functions? Maybe along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is achieved, the bills become law. Legislation is upheld by the courts. That's it. However, that was how it once functioned. Those days are over.

The Rise of Shadow Tribunals

In the modern era, international firms, and the oligarchs who own them, can sue nation states for the laws they pass, at private courts staffed by business advocates. These proceedings take place away from public scrutiny. In contrast to domestic courts, these panels allow no avenue for appeal or legal review. The general public are barred from bringing a case to them, just as our government, or even businesses operating from this country. Access is granted solely for entities registered abroad.

Should an arbitration panel determines that a legislative action may compromise the corporation’s anticipated profits, it may order financial penalties of vast sums, running into billions.

This compensation are based not on actual losses but funds the tribunal officials determine the company would perhaps have made. The government might be compelled to rescind the measure. It will be deterred from enacting future policies of a similar nature, worried about incurring a lawsuit.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being filed, as corporations observe each other, and hedge funds finance suits for a share of a share of the settlements. The consequence? Sovereignty and democratic governance are now unaffordable.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the choices taken by parliaments is that this provision has been written – without democratic mandate, and typically amid conditions of profound opacity – within international trade agreements.

A Real-World Example: The Cumbrian Coal Mine

A year ago, environmental campaigners achieved a major legal triumph at the high court. The presiding officer ruled that plans to open the first new deep coal mine in the UK for a generation, in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no consequence on national carbon targets. The new government subsequently revoked the permission the previous administration had issued. Now, this legal outcome could be compromised by an secret arbitration panel reporting to exclusively the entities filing the suit.

During August, a corporate entity whose beneficial owners are based in the Cayman Islands filed a lawsuit versus the UK government. Last week a arbitration panel in Washington DC was convened to consider the case.

This firm is suing the UK for the money it might have made if the mine had received permission to go ahead. Citizens have little idea how much this could amount to. Which individual is acting on its behalf challenging the UK administration? A member of parliament, and former attorney-general in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the domestic court validates it, then a foreign company disputes it through an undemocratic private court, and a sitting MP represents its behalf.

A Sanctions Challenge

Concurrently that the court on the coal mine dispute was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a wealthy Russian individual, an oligarch. We know nothing of the case so far, but it is highly possible that he will utilise the arbitration process to fight the sanctions the UK enacted against him after the invasion of Ukraine. He has initiated proceedings against a small nation with similar intent, demanding sixteen billion dollars: an amount representing half state's annual revenue. Among the lawyers representing him there? Cherie Blair, married to the former British prime minister.

International law scholars argue that the EU’s delay in utilising seized state funds as collateral for its loan to Ukraine arises from Belgium’s fear that it could be subject to litigation in the offshore corporate courts, under a investment pact. This unprecedented, unaccountable authority over democratic administrations could be blocking the finance Ukraine desperately needs.

Misleading Claims and Escalating Risks

We were assured that such things were not possible. Previously, a government leader, championing the biggest and most dangerous of all investment pacts, stated: “We’ve signed investment treaty after trade deal and we have never seen a issue in the past.” An adviser on this issue described campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by these lawsuits. Warnings that “when companies grasp the influence bestowed upon them, they will redirect their efforts from the poorer states to the developed economies” were greeted by widespread derision.

That threat has come to pass. In the current period, fossil fuel and resource corporations have filed a historic level of suits against nations both wealthy and developing, opposing – similar to the Cumbrian coalmine – state efforts to halt climate breakdown. Corporations have to date won vast sums by using ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP