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How do you understand our political system operates? Perhaps along the lines of this. The public votes for MPs. They legislate on bills. When a majority is secured, the bills are enacted as law. Legislation is maintained by the courts. That's it. Well, that’s how it once functioned. Those days are over.

The Advent of Shadow Tribunals

Today, international firms, along with the wealthy individuals who own them, can sue nation states for the policies they pass, at secret arbitration panels made up of commercial attorneys. These proceedings are held away from public scrutiny. Differing from national judiciaries, these tribunals grant no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, just as our government, including businesses operating from this country. Access is granted only to businesses registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s expected profits, it may order financial penalties of hundreds of millions, running into billions.

These awards are based not on real financial harm but compensation the panel members conclude the company would perhaps have made. The government may have to abandon its policy. It will be discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Process Running Rampant

Record numbers of legal actions are being filed, as corporations observe each other, and investment funds bankroll lawsuits in exchange for a share of the settlements. The consequence? National sovereignty and democracy are now unaffordable.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override national legislation and the decisions enacted by parliaments is that this stipulation has been written – without democratic mandate, and typically amid an atmosphere of profound opacity – inside bilateral investment treaties.

A Real-World Case: The UK Coalmine

A year ago, activists secured a significant win at the High Court. The justice ruled that schemes to dig the first deep coalmine in the UK for a generation, in Cumbria, were wrongly permitted by the Conservative government, which had accepted the questionable argument that the mine could have zero effect on our carbon budgets. The incoming administration later cancelled the licence the previous administration had approved. Today, this victory faces being overturned by an offshore tribunal answering to exclusively the corporations petitioning it.

In August, a corporate entity whose ultimate owners reside in the offshore financial centre filed a lawsuit versus the UK government. Last week a dispute settlement body in the United States was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it might have made if the mine had received permission to go ahead. Citizens have no idea how much this sum represents. What legal team is acting on its behalf against the state? A sitting MP, and previous senior legal advisor in the outgoing administration, the noted patriot the MP. The administration makes a decision, the national judiciary supports it, then a international entity challenges it through an unaccountable private court, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

Concurrently that the court on the coal mine dispute was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case so far, but it seems likely that he will utilise the ISDS mechanism to fight the penalties the UK levied against him following the war in Ukraine. He has filed a claim against Luxembourg with similar intent, demanding $16bn: half that state's yearly income. Part of the lawyers representing him there? Cherie Blair, wife of the former British prime minister.

International law scholars contend that the EU’s delay in leveraging immobilised oligarchs' funds as collateral for its loan to Ukraine is due to concerns within Belgium that it could be sued in the secret arbitration panels, under a investment pact. This extraordinary, unaccountable authority over elected governments may be obstructing the finance Ukraine urgently requires.

Empty Promises and Mounting Costs

Politicians promised that these scenarios were not possible. Years ago, a government leader, promoting the most significant and hazardous of all investment pacts, declared: “Britain has agreed to trade deal after trade deal and we have never seen a issue in the past.” A consultant on this matter described critics of “alarmism … the truth is, ISDS does not affect the UK much”. The general impression was crafted to be that solely developing countries needed to fear ISDS claims. Cautionary notes that “when companies begin to understand the authority they’ve been granted, they will shift their focus from the weak nations to the developed economies” were dismissed with widespread derision.

That threat has now materialised. This year, energy and resource corporations have lodged a unprecedented number of suits against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – official measures to halt global warming. Companies have to date won vast sums by using ISDS, of which energy giants have secured eighty-four billion dollars. That equates to the combined GDP