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What is your perceive our system of government operates? Perhaps something like this. We elect MPs. They legislate on bills. When a majority is secured, the bills become law. The law is upheld by the courts. Simple as that. However, that’s how it operated in the past. No longer.

The Rise of Shadow Tribunals

Today, overseas companies, or the wealthy individuals who own them, are able to litigate against nation states for the regulations they pass, at offshore tribunals staffed by commercial attorneys. The cases are held away from public scrutiny. Unlike our courts, these bodies grant no opportunity to appeal or judicial review. You or I are unable to file a case to them, just as our government, or even enterprises operating from this country. The door is open solely for entities registered abroad.

When a secret court finds that a law or policy may compromise the corporation’s anticipated profits, it may order financial penalties of hundreds of millions of pounds, running into billions.

This compensation constitute not real financial harm but funds the arbitrators determine the company could potentially have made. The government could be forced to abandon its policy. It will be hesitant to passing future laws along the same lines, worried about being sued.

A System Growing Exponentially

Record numbers of cases are being brought, as corporations observe each other, and investment funds finance suits in return for a cut of the settlements. The outcome? Democratic sovereignty and democracy are becoming too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the rulings taken by legislatures is that this provision has been written – without democratic mandate, and frequently under conditions of extreme secrecy – within trade treaties.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, a conservation group won a great victory at the senior court. The presiding officer ruled that schemes to dig the first new deep coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the Conservative government, which had agreed to the extraordinary assertion that the mine would have no consequence on climate commitments. The incoming administration later cancelled the licence the former government had issued. Now, this victory is under threat by an secret arbitration panel accountable to exclusively the corporations bringing the case.

Last August, a corporate entity whose final controllers are located in the offshore financial centre filed a lawsuit challenging the UK government. Last week a dispute settlement body in Washington DC was established to adjudicate on it.

This firm is seeking compensation from the UK for the money it could have earned if the mine had been allowed to proceed. Citizens have little idea how much this might be. What legal team is representing it against the UK administration? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the high court upholds it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

A Sanctions Challenge

Concurrently that the court on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. We know nothing of the case to date, but it seems likely that he will utilise the ISDS mechanism to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has previously started suing Luxembourg on these grounds, demanding a colossal sum: half that state's annual revenue. Among the legal team representing him there? a prominent lawyer, married to the former British prime minister.

Trade specialists believe that the EU’s delay in utilising seized 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 investment pact. This extraordinary, undemocratic power over elected governments may be obstructing the finance Ukraine critically depends on.

Misleading Claims and Mounting Costs

Politicians promised that these scenarios could not occur. Previously, a senior politician, championing the largest and riskiest of all investment pacts, declared: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this matter accused critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “as corporations start to realise the authority bestowed upon them, they will turn their attention from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat has come to pass. In the current period, energy and resource corporations have initiated a historic level of claims against nations both wealthy and developing, challenging – similar to the UK mine – government attempts to halt global warming. Firms have so far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have been awarded the majority. That is equivalent to the combined GDP