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Can you understand our system of government functions? Maybe something like this. We elect MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Statutes are enforced by the courts. End of story. However, that’s how it once functioned. Not anymore.

The Advent of Shadow Tribunals

Today, international firms, or the billionaires behind them, are able to litigate against elected administrations for the laws they pass, at secret arbitration panels composed of commercial attorneys. Such disputes take place in secret. Differing from national judiciaries, these bodies grant no right of appeal or legal review. You or I are unable to file a case to them, just as our government, or even businesses operating from this country. The door is open only to businesses registered abroad.

Should an arbitration panel rules that a law or policy may compromise the corporation’s projected profits, it may order compensation of hundreds of millions of pounds, even billions.

These sums constitute not real financial harm but compensation the panel members determine the company could potentially have made. The administration may have to drop the legislation. It becomes hesitant to introducing similar legislation of a similar nature, for fear of being sued.

A System Spiralling Out of Control

Record numbers of disputes are being brought, as firms learn from each other, and private equity fund legal actions in return for a portion of the awards. The consequence? Democratic sovereignty and popular rule are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump domestic law and the rulings taken by parliaments is that this stipulation has been written – without public consent, and typically amid a climate of total confidentiality – within bilateral investment treaties.

A Real-World Case: The Cumbrian Coalmine

Last year, environmental campaigners secured a significant win at the high court. The judge ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine would have had no consequence on national carbon targets. The incoming administration then withdrew the consent the former government had granted. Currently, this victory could be compromised by an secret arbitration panel accountable to no one but the corporations filing the suit.

During August, a corporate entity whose final controllers reside in the tax haven lodged a claim challenging the UK government. Recently a dispute settlement body in the United States was set up to adjudicate on it.

The company is seeking compensation from the UK for the profits it could have earned if the mine had been permitted to commence operations. We have no idea how much this might be. Which individual is serving as its counsel in opposition to the UK administration? A member of parliament, and former attorney-general in the previous government, that great patriot the MP. The government enacts a policy, the national judiciary supports it, then a foreign company contests it through an undemocratic private court, and a sitting MP represents its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows nothing of the case at present, but it is highly possible that he will utilise the arbitration process to challenge the sanctions the UK imposed on him following the war in Ukraine. He has already started suing Luxembourg for this reason, seeking a colossal sum: an amount representing half government’s yearly income. Among the legal team acting for him in that case? a prominent lawyer, spouse of the former British prime minister.

International law scholars believe that the EU’s procrastination in utilising seized Russian assets as security for its financial support package arises from Belgium’s fear that it could be sued in the offshore corporate courts, under a trade agreement. This extraordinary, secretive influence over democratic administrations may be obstructing the money Ukraine critically depends on.

False Assurances and Escalating Threats

We were assured that these events wouldn’t happen. Years ago, a former prime minister, advocating for the largest and riskiest of all such treaties, declared: “Britain has agreed to trade agreement after trade deal and there has never been a issue in the past.” A consultant on this topic described activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries needed to fear ISDS claims. Warnings that “as corporations grasp the authority bestowed upon them, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by scepticism.

That threat has come to pass. Recently, energy and mining firms have initiated a record number of suits against nations both wealthy and developing, challenging – like the example of the Whitehaven project – government attempts to stop global warming. Corporations have thus far won vast sums by using ISDS, of which oil majors have obtained eighty-four billion dollars. That is equivalent to the combined GDP