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Can you perceive our political system works? It could be along the lines of this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Statutes are enforced by the courts. End of story. Well, that’s how it once functioned. Not anymore.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, or the wealthy individuals that control them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels composed of business advocates. The cases are conducted away from public scrutiny. Differing from national judiciaries, these bodies allow no opportunity to appeal or oversight by judges. Ordinary citizens are unable to file a case to them, and neither can our government, or even enterprises based in this country. They are open only to businesses based overseas.

Should an arbitration panel finds that a government measure could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, running into billions.

These sums are based not on real financial harm but funds the tribunal officials decide the company might otherwise have made. The government could be forced to abandon its policy. It is deterred from introducing similar legislation of a similar nature, worried about facing litigation.

A Process Running Rampant

Historically high figures of disputes are being filed, as companies learn from each other, and hedge funds fund legal actions in return for a share of the settlements. The consequence? Sovereignty and democratic governance are now unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the decisions enacted by legislatures is that this stipulation has been incorporated – without public consent, and frequently under conditions of profound opacity – into trade treaties.

A Concrete Instance: The Whitehaven Coalmine

A year ago, activists achieved a major legal triumph at the senior court. The justice determined that plans to open the first deep coalmine in the UK for 30 years, in northwest England, had been illegally sanctioned by the previous government, which had agreed to the bizarre claim that the mine could have zero effect on national carbon targets. The incoming administration subsequently revoked the licence the Tories had issued. Currently, this success faces being overturned by an offshore tribunal accountable to exclusively the companies filing the suit.

During August, a company whose ultimate owners are based in the tax haven filed a lawsuit challenging the UK government. The previous week a arbitration panel in the United States was established to hear it.

This firm is seeking compensation from the UK for the profits it would have generated if the mine had been allowed to go ahead. The public has no idea how much this could amount to. What legal team is representing it in opposition to the UK administration? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot the MP. The state makes a decision, the high court validates it, then a overseas corporation contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

A Sanctions Case

Concurrently that the tribunal on the coalmine case was convened, we learned from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it seems likely that he will utilise the ISDS mechanism to contest the sanctions the UK levied against him following the invasion of Ukraine. He has already initiated proceedings against another European state for this reason, claiming a colossal sum: equivalent to half of state's yearly income. Among the legal team representing him there? the wife of a former prime minister, wife of the previous PM.

International law scholars contend that the EU’s hesitation in using frozen oligarchs' funds as security for its aid for Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments may be obstructing the finance Ukraine urgently requires.

Empty Promises and Growing Costs

The public was told that these scenarios wouldn’t happen. Previously, a senior politician, championing the biggest and most dangerous of all these agreements, told us: “We’ve signed investment treaty after trade deal and we have never seen a problem in the past.” A consultant on this topic accused activists of “exaggeration … the truth is, ISDS barely touches the UK much”. The general impression seemed to be that solely developing countries had to worry about ISDS claims. Warnings that “as corporations grasp the authority they now possess, they will shift their focus from the weak nations to the strong ones” were dismissed with widespread derision.

That threat is now a reality. In the current period, fossil fuel and extraction companies have initiated a historic level of suits against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – state efforts to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars via ISDS, of which oil majors have been awarded eighty-four billion dollars. That is equivalent to the combined GDP