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What is your understand our system of government works? Maybe something like this. The public votes for MPs. They debate and pass bills. Should a majority is obtained, the bills become law. Legislation is maintained by the courts. That's it. Yet, that was how it used to work. Those days are over.

The Advent of Shadow Tribunals

Nowadays, overseas companies, and the wealthy individuals who own them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are conducted in secret. In contrast to domestic courts, these panels allow no avenue for appeal or legal review. You or I cannot take a case to them, and neither can our government, or even businesses operating from this country. The door is open exclusively to entities registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s anticipated profits, it can award compensation of vast sums, running into billions.

These awards are based not on real financial harm but funds the tribunal officials conclude the company might otherwise have made. The state might be compelled to abandon its policy. It will be discouraged from passing future laws in that area, due to the risk of being sued.

A Process Spiralling Out of Control

Record numbers of cases are being filed, as companies observe each other, and hedge funds bankroll lawsuits in exchange for a portion of the takings. The result? Democratic sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can supersede national legislation and the choices enacted by elected bodies is that this provision has been incorporated – without public consent, and often in an atmosphere of total confidentiality – within trade treaties.

A Specific Instance: The UK Coal Mine

Twelve months ago, a conservation group achieved a major legal triumph at the High Court. The presiding officer ruled that plans to excavate the first major coal mine in the UK for 30 years, in northwest England, had been illegally sanctioned by the previous government, which had accepted the questionable argument that the mine could have no consequence on national carbon targets. The incoming administration later cancelled the consent the former government had approved. Today, this success faces being overturned by an foreign court accountable to exclusively the corporations filing the suit.

Last August, a firm whose beneficial owners reside in the Cayman Islands filed a lawsuit challenging the UK government. The previous week a dispute settlement body in the United States was established to consider the case.

This firm is suing the UK for the money it would have generated if the mine had been permitted to go ahead. We have no idea how much this might be. Who is acting on its behalf challenging the state? An elected representative, and ex-law officer in the previous government, the self-proclaimed patriot the MP. The administration makes a decision, the high court validates it, then a overseas corporation disputes it through an undemocratic offshore tribunal, and a member of our parliament represents its behalf.

An Oligarch's Challenge

Simultaneously that the panel on the coal mine dispute was appointed, it was revealed from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows nothing of the case to date, but it is highly possible that he will utilise the ISDS mechanism to challenge the penalties the UK levied against him subsequent to the Russian aggression. He has already started suing Luxembourg with similar intent, demanding a colossal sum: half that nation's yearly income. Part of the counsel acting for him in that case? the wife of a former prime minister, married to the former British prime minister.

Trade specialists contend that the EU’s hesitation in utilising seized Russian assets as guarantee for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This extraordinary, undemocratic power over sovereign states could be blocking the money Ukraine urgently requires.

Misleading Claims and Growing Risks

We were assured that these events wouldn’t happen. Years ago, a government leader, promoting the largest and riskiest of all investment pacts, declared: “We’ve signed trade deal upon trade deal and we have never seen a case in the past.” An expert on this topic accused activists of “scaremongering … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that only poorer nations should be concerned by ISDS claims. Predictions that “once firms grasp the authority they now possess, they will shift their focus from the poorer states to the strong ones” were dismissed with widespread derision.

That prediction is now a reality. This year, energy and mining firms have initiated a historic level of claims against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – official measures to halt global warming. Companies have so far won vast sums via ISDS, of which fossil fuel companies have obtained the majority. That equates to the combined GDP