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How do you understand our system of government works? Maybe similar to this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills become law. Statutes is upheld by the courts. End of story. Well, that was how it used to work. Those days are over.

The Emergence of Shadow Tribunals

In the modern era, international firms, along with the wealthy individuals that control them, can sue elected administrations for the policies they pass, at private courts staffed by corporate lawyers. Such disputes are conducted away from public scrutiny. Unlike our courts, these tribunals allow no opportunity to appeal or oversight by judges. You or I are barred from bringing a case to them, just as our government, or even enterprises operating from this country. The door is open solely for businesses operating from foreign soil.

When a secret court determines that a law or policy might diminish the corporation’s anticipated profits, it can award financial penalties of hundreds of millions, potentially billions.

These awards constitute not tangible damages but funds the tribunal officials determine the company could potentially have made. The state might be compelled to drop the legislation. It is discouraged from enacting future policies in that area, for fear of being sued.

A Process Spiralling Out of Control

Unprecedented levels of cases are being filed, as firms take cues from each other, and hedge funds finance suits in return for a portion of the takings. The consequence? Democratic sovereignty and democratic governance are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the decisions made by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under a climate of profound opacity – inside bilateral investment treaties.

A Concrete Instance: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer determined that schemes to open the first deep coalmine in the UK for a generation, in Cumbria, had been unlawfully approved by the Conservative government, which had accepted the questionable argument that the mine would have had no impact on climate commitments. The Labour government later cancelled the licence the Tories had approved. Currently, this legal outcome could be compromised by an secret arbitration panel answering to only the entities petitioning it.

In August, a company whose final controllers reside in the tax haven filed a lawsuit against the UK government. Last week a tribunal in the United States was set up to adjudicate on it.

This firm is seeking compensation from the UK for the money it would have generated if the mine had been permitted to go ahead. The public has little idea how much this could amount to. Who is representing it in opposition to the state? A member of parliament, and ex-law officer in the previous government, the noted patriot Geoffrey Cox. The state enacts a policy, the domestic court validates it, then a overseas corporation disputes it through an undemocratic private court, and a elected official acts on its behalf.

An Oligarch's Case

Concurrently that the panel on the mining lawsuit was established, it was revealed from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, an oligarch. Details are little of the case to date, but it is highly possible that he will utilise the arbitration process to fight the restrictions the UK levied against him following the war in Ukraine. He has started suing a small nation on these grounds, seeking $16bn: an amount representing half state's annual revenue. Among the counsel representing him there? the wife of a former prime minister, spouse of the previous PM.

Trade specialists argue that the EU’s procrastination in using frozen Russian assets as guarantee for its financial support package arises from apprehension in Brussels that it could be sued in the ISDS tribunals, under a bilateral investment treaty. This unprecedented, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

Misleading Claims and Growing Risks

We were assured that these events could not occur. Previously, a government leader, advocating for the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement upon trade deal and we have never seen a case in the past.” An adviser on this issue accused critics of “scaremongering … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that only poorer nations needed to fear such legal actions. Warnings that “once firms start to realise the authority they now possess, they will turn their attention from the weak nations to the wealthy nations” were greeted by scepticism.

That warning is now a reality. Recently, fossil fuel and extraction companies have lodged a record number of cases against nations rich and poor, challenging – similar to the Whitehaven project – state efforts to halt climate breakdown. Companies have to date won $114bn via ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP