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Can you perceive our political system works? Perhaps along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills become law. The law are enforced by the courts. Simple as that. Well, that’s how it used to work. Not anymore.

The Rise of Shadow Tribunals

Nowadays, overseas companies, or the oligarchs who own them, are able to litigate against governments for the policies they pass, at private courts made up of commercial attorneys. The cases are conducted away from public scrutiny. Unlike our courts, these panels grant no opportunity to appeal or judicial review. The general public cannot take a case to them, just as our government, or even businesses based in this country. Access is granted only to corporations registered abroad.

When a secret court rules that a law or policy might diminish the corporation’s anticipated profits, it can award compensation of hundreds of millions of pounds, even billions.

These sums constitute not tangible damages but funds the tribunal officials decide the company might otherwise have made. The state might be compelled to abandon its policy. It is deterred from introducing similar legislation of a similar nature, due to the risk of facing litigation.

A Process Spiralling Out of Control

Historically high figures of disputes are being initiated, as firms take cues from each other, and hedge funds fund legal actions in return for a portion of the settlements. The consequence? Democratic sovereignty and popular rule are now too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump national legislation and the choices enacted by elected bodies is that this provision has been written – without democratic mandate, and typically amid a climate of total confidentiality – into trade treaties.

A Real-World Example: The Whitehaven Coal Mine

A year ago, a conservation group won a great victory at the high court. The justice ruled that schemes to dig the first new deep coal mine in the UK for a generation, in Cumbria, were illegally sanctioned by the outgoing administration, which had endorsed the extraordinary assertion that the mine could have no impact on climate commitments. The new government then withdrew the permission the previous administration had approved. Currently, this legal outcome could be compromised by an secret arbitration panel reporting to no one but the companies petitioning it.

Last August, a company whose ultimate owners are based in the tax haven initiated proceedings challenging the UK government. Last week a dispute settlement body in Washington DC was set up to consider the case.

This firm is litigating against the UK for the profits it might have made if the mine had been allowed to proceed. We have no clear indication how much this sum represents. Which individual is representing it challenging the state? A sitting MP, and ex-law officer in the previous government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary supports it, then a international entity disputes it through an undemocratic arbitration panel, and a sitting MP represents its behalf.

An Oligarch's Challenge

Simultaneously that the court on the mining lawsuit was established, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, a sanctioned individual. Details are scarce of the case so far, but it is highly possible that he will utilise the tribunal to challenge the penalties the UK imposed on him following the Russian aggression. He has already filed a claim against another European state on these grounds, seeking $16bn: an amount representing half government’s yearly income. Part of the counsel on his side? a prominent lawyer, married to the previous PM.

Legal experts contend that the EU’s delay in leveraging immobilised state funds as collateral for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, undemocratic power over democratic administrations could be blocking the funds Ukraine urgently requires.

Empty Promises and Growing Costs

We were assured that such things could not occur. Previously, a government leader, advocating for the most significant and hazardous of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” An expert on this issue accused critics of “exaggeration … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “when companies begin to understand the power they’ve been granted, they will turn their attention from the poorer states to the developed economies” were greeted by widespread derision.

That prediction is now a reality. This year, fossil fuel and extraction companies have initiated a record number of suits against nations across the economic spectrum, contesting – similar to the UK mine – government attempts to halt global warming. Corporations have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured eighty-four billion dollars. That equates to the combined GDP