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What is your reckon our political system functions? It could be something like this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills pass into law. Legislation is upheld by the courts. End of story. Well, that was how it operated in the past. No longer.

The Advent of Shadow Tribunals

Today, foreign corporations, and the oligarchs who own them, are able to litigate against nation states for the laws they pass, at secret arbitration panels staffed by corporate lawyers. Such disputes are held away from public scrutiny. Unlike our courts, these panels grant no right of appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted exclusively to corporations based overseas.

Should an arbitration panel determines that a legislative action could harm the corporation’s expected profits, it has the power to grant financial penalties of vast sums, running into billions.

These sums constitute not actual losses but compensation the panel members conclude the company could potentially have made. The administration might be compelled to abandon its policy. It is discouraged from passing future laws in that area, due to the risk of being sued.

A Process Growing Exponentially

Record numbers of legal actions are being brought, as firms take cues from each other, and hedge funds finance suits in return for a share of the takings. The consequence? National sovereignty and democratic governance are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the decisions taken by legislatures is that this provision has been inserted – absent public approval, and frequently under conditions of extreme secrecy – inside international trade agreements.

A Real-World Instance: The UK Coal Mine

Last year, a conservation group achieved a major legal triumph at the senior court. The presiding officer found that proposals to excavate the first deep coalmine in the UK for three decades, in Cumbria, were wrongly permitted by the previous government, which had agreed to the extraordinary assertion that the mine would have had no consequence on our carbon budgets. The Labour government subsequently revoked the licence the previous administration had issued. Currently, this victory is under threat by an offshore tribunal accountable to no one but the companies filing the suit.

During August, a company whose ultimate owners reside in the tax haven initiated proceedings challenging the UK government. The previous week a arbitration panel in the United States was set up to hear it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to proceed. Citizens have no clear indication how much this sum represents. Which individual is serving as its counsel against the British government? An elected representative, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The administration enacts a policy, the national judiciary supports it, then a overseas corporation contests it through an secretive arbitration panel, and a elected official represents its behalf.

An Oligarch's Lawsuit

On the same day that the panel on the coal mine dispute was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he’ll use the ISDS mechanism to contest the penalties the UK enacted against him following the war in Ukraine. He has initiated proceedings against Luxembourg with similar intent, demanding $16bn: half that government’s yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, married to the ex-UK leader.

Legal experts contend that the EU’s hesitation in leveraging immobilised Russian assets as security for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the offshore corporate courts, under a trade agreement. This extraordinary, unaccountable authority over democratic administrations may be obstructing the money Ukraine urgently requires.

Empty Promises and Growing Risks

We were assured that these scenarios could not occur. Previously, a senior politician, advocating for the biggest and most dangerous of all these agreements, told us: “We’ve signed trade deal after trade deal and there has not been a issue in the past.” An adviser on this issue labelled activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The overall message appeared to be that only poorer nations had to worry about these lawsuits. Cautionary notes that “when companies begin to understand the authority they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by widespread derision.

That warning has come to pass. In the current period, oil and gas and mining firms have initiated a historic level of claims against nations rich and poor, opposing – like the example of the Whitehaven project – official measures to prevent climate breakdown. Companies have so far won $114bn through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That equates to the combined GDP