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How do you reckon our system of government functions? Maybe something like this. The public votes for MPs. They debate and pass bills. Should a majority is achieved, the bills become law. The law is maintained by the courts. That's it. However, that’s how it used to work. No longer.

The Advent of Shadow Tribunals

In the modern era, international firms, along with the oligarchs who own them, can sue governments for the laws they pass, at private courts made up of commercial attorneys. Such disputes are conducted in secret. In contrast to domestic courts, these bodies grant no avenue for appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, or even businesses operating from this country. Access is granted solely for corporations operating from foreign soil.

When a secret court determines that a legislative action could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions of pounds, running into billions.

These sums represent not real financial harm but compensation the panel members conclude the company might otherwise have made. The government could be forced to drop the legislation. It will be discouraged from introducing similar legislation along the same lines, due to the risk of facing litigation.

A System Spiralling Out of Control

Record numbers of legal actions are being initiated, as corporations take cues from each other, and hedge funds bankroll lawsuits in exchange for a portion of the settlements. The consequence? National sovereignty and popular rule are now unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the choices enacted by parliaments is that this clause has been written – without democratic mandate, and typically amid an atmosphere of total confidentiality – into bilateral investment 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 determined that schemes to excavate the first new deep coal mine in the UK for three decades, in Cumbria, were found to be unlawfully approved by the previous government, which had accepted the extraordinary assertion that the mine would have no impact on climate commitments. The new government subsequently revoked the permission the Tories had issued. Today, this victory could be compromised by an secret arbitration panel accountable to only the corporations filing the suit.

During August, a company whose ultimate owners are located in the Cayman Islands lodged a claim challenging the UK government. Last week a dispute settlement body in the United States was convened to consider the case.

The claimant is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to commence operations. The public has no idea how much this could amount to. Which individual is representing it against the state? A member of parliament, and ex-law officer in the previous government, that great patriot the MP. The government enacts a policy, the domestic court validates it, then a overseas corporation challenges it through an undemocratic arbitration panel, and a elected official works for its behalf.

A Sanctions Lawsuit

On the same day that the court on the mining lawsuit was established, it was revealed from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case so far, but it appears probable that he’ll use the arbitration process to challenge the sanctions the UK levied against him subsequent to the war in Ukraine. He has previously initiated proceedings against Luxembourg on these grounds, demanding a colossal sum: equivalent to half of nation's yearly budget. Among the counsel acting for him in that case? Cherie Blair, married to the ex-UK leader.

International law scholars believe that the EU’s hesitation in utilising seized state funds as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be sued in the ISDS tribunals, under a investment pact. This unprecedented, undemocratic power over elected governments might be preventing the funds Ukraine critically depends on.

Empty Promises and Mounting Risks

We were assured that such things wouldn’t happen. In 2014, a former prime minister, championing the most significant and hazardous of all these agreements, told us: “We’ve signed trade agreement after trade deal and there has never been a case in the past.” An adviser on this topic labelled critics of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states had to worry about these lawsuits. Predictions that “once firms begin to understand the power they’ve been granted, they will redirect their efforts from the weak nations to the wealthy nations” were greeted by widespread derision.

That warning has now materialised. This year, energy and resource corporations have initiated a historic level of cases against nations across the economic spectrum, opposing – like the example of the UK mine – state efforts to prevent climate breakdown. Corporations have so far won $114bn through ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP