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What is your reckon our political system operates? It could be along the lines of this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills become law. Statutes are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. No longer.

The Emergence of Shadow Tribunals

Nowadays, foreign corporations, or the oligarchs who own them, can sue governments for the regulations they pass, at secret arbitration panels staffed by business advocates. Such disputes are conducted behind closed doors. Differing from national judiciaries, these panels grant no avenue for appeal or legal review. The general public cannot take a case to them, just as our government, or even companies headquartered in this country. The door is open exclusively to businesses registered abroad.

When a secret court rules that a government measure may compromise the corporation’s anticipated profits, it has the power to grant compensation of hundreds of millions of pounds, even billions.

These awards constitute not actual losses but funds the panel members determine the company could potentially have made. The administration could be forced to rescind the measure. It becomes deterred from passing future laws of a similar nature, for fear of facing litigation.

A System Growing Exponentially

Record numbers of legal actions are being filed, as firms take cues from each other, and private equity fund legal actions in return for a cut of the settlements. The outcome? National sovereignty and democracy are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump a country's own laws and the decisions made by legislatures is that this stipulation has been inserted – absent public approval, and frequently under conditions of total confidentiality – inside international trade agreements.

A Concrete Case: The UK Coalmine

Last year, activists achieved a major legal triumph at the high court. The justice determined that plans to open the first deep coalmine in the UK for 30 years, in northwest England, were unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine could have no consequence on our carbon budgets. The new government then withdrew the consent the Tories had approved. Currently, this success faces being overturned by an offshore tribunal reporting to only the entities filing the suit.

Last August, a firm whose beneficial owners reside in the Cayman Islands initiated proceedings challenging the UK government. The previous week a dispute settlement body in the US capital was established to consider the case.

The company is litigating against the UK for the profits it could have earned if the mine had been allowed to commence operations. The public has little idea how much this might be. What legal team is serving as its counsel against the UK administration? An elected representative, and former attorney-general in the outgoing administration, that great patriot Sir Geoffrey Cox. The state makes a decision, the high court upholds it, then a foreign company challenges it through an undemocratic arbitration panel, and a elected official represents its behalf.

An Oligarch's Case

Concurrently that the tribunal on the coal mine dispute was convened, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case so far, but it seems likely that he may employ the ISDS mechanism to fight the restrictions the UK enacted against him following the war in Ukraine. He has previously filed a claim against Luxembourg for this reason, seeking a colossal sum: equivalent to half of nation's annual revenue. Part of the legal team representing him there? the wife of a former prime minister, wife of the ex-UK leader.

International law scholars argue that the EU’s hesitation in using frozen state funds as security for its aid for Ukraine stems from Belgium’s fear that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, unaccountable authority over sovereign states might be preventing the funds Ukraine urgently requires.

Empty Promises and Mounting Risks

The public was told that these events were not possible. Years ago, a former prime minister, advocating for the most significant and hazardous of all investment pacts, told us: “The UK has signed trade agreement upon trade deal and there has not been a issue in the past.” An expert on this issue accused activists of “exaggeration … in reality, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear these lawsuits. Predictions that “when companies start to realise the authority they now possess, they will turn their attention from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction is now a reality. In the current period, oil and gas and resource corporations have initiated a historic level of claims against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – government attempts to halt climate breakdown. Firms have to date won one hundred and fourteen billion dollars by using ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP