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Can you perceive our political system works? Perhaps similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills become law. Legislation is upheld by the courts. That's it. Yet, that used to be how it once functioned. No longer.

The Advent of Shadow Tribunals

In the modern era, foreign corporations, and the oligarchs who own them, are able to litigate against governments for the regulations they pass, at secret arbitration panels made up of corporate lawyers. The cases are conducted behind closed doors. In contrast to domestic courts, these bodies grant no opportunity to appeal or oversight by judges. You or I are unable to file a case to them, nor can our government, or even enterprises operating from this country. Access is granted solely for corporations registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s expected profits, it can award financial penalties of hundreds of millions, potentially billions.

These awards represent not real financial harm but money the arbitrators conclude the company might otherwise have made. The state may have to abandon its policy. It will be discouraged from passing future laws along the same lines, due to the risk of facing litigation.

A System Spiralling Out of Control

Unprecedented levels of disputes are being brought, as firms learn from each other, and investment funds bankroll lawsuits for a share of a cut of the takings. The consequence? Sovereignty and popular rule are turning into unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it can trump national legislation and the choices taken by parliaments is that this provision has been incorporated – without public consent, and frequently under a climate of total confidentiality – inside bilateral investment treaties.

A Specific Instance: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the high court. The judge ruled that schemes to open the first major coal mine in the UK for a generation, in northwest England, were illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine could have no consequence on national carbon targets. The Labour government later cancelled the permission the Tories had approved. Now, this success faces being overturned by an foreign court reporting to exclusively the corporations petitioning it.

During August, a firm whose final controllers are based in the Cayman Islands lodged a claim against the UK government. Last week a tribunal in the United States was set up to consider the case.

The claimant is litigating against the UK for the money it might have made if the mine had been allowed to go ahead. The public has little idea how much this might be. What legal team is acting on its behalf challenging the state? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Geoffrey Cox. The administration passes a law, the domestic court validates it, then a foreign company contests it through an undemocratic private court, and a sitting MP works for its behalf.

A Sanctions Case

Simultaneously that the court on the coal mine dispute was appointed, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case at present, but it appears probable that he’ll use the ISDS mechanism to fight the restrictions the UK imposed on him following the invasion of Ukraine. He has previously initiated proceedings against another European state with similar intent, demanding sixteen billion dollars: an amount representing half nation's annual revenue. Among the counsel representing him there? Cherie Blair, spouse of the former British prime minister.

International law scholars argue that the EU’s hesitation in leveraging immobilised state funds as collateral for its aid for Ukraine is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, secretive influence over democratic administrations could be blocking the money Ukraine critically depends on.

False Assurances and Growing Risks

Politicians promised that these scenarios wouldn’t happen. In 2014, a senior politician, advocating for the most significant and hazardous of all such treaties, stated: “We’ve signed trade deal upon trade deal and we have never seen a problem in the past.” An expert on this issue labelled critics of “alarmism … in reality, ISDS barely touches the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by ISDS claims. Warnings that “once firms begin to understand the authority they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has now materialised. In the current period, energy and extraction companies have lodged a record number of suits against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – state efforts to prevent environmental catastrophe. Firms have to date won $114bn via ISDS, of which fossil fuel companies have been awarded the majority. That equates to the combined GDP