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What is your reckon our system of government works? Maybe similar to this. The public votes for MPs. They vote on bills. If a majority is obtained, the bills become law. Statutes is upheld by the courts. End of story. Well, that used to be how it once functioned. No longer.

The Rise of Shadow Tribunals

In the modern era, international firms, or the wealthy individuals who own them, are able to litigate against elected administrations for the policies they pass, at offshore tribunals made up of business advocates. The cases take place in secret. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. The general public are unable to file a case to them, just as our government, including companies operating from this country. They are open solely for entities based overseas.

Should an arbitration panel finds that a legislative action may compromise the corporation’s anticipated profits, it can award compensation of vast sums, potentially billions.

These awards represent not tangible damages but compensation the arbitrators decide the company might otherwise have made. The administration could be forced to rescind the measure. It becomes hesitant to enacting future policies in that area, worried about facing litigation.

A Mechanism Running Rampant

Record numbers of disputes are being initiated, as firms observe each other, and private equity bankroll lawsuits in return for a portion of the awards. The consequence? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The rationale it is permitted to override domestic law and the rulings made by legislatures is that this clause has been written – absent public approval, and often in a climate of profound opacity – into international trade agreements.

A Concrete Instance: The Whitehaven Coalmine

Twelve months ago, a conservation group secured a significant win at the high court. The presiding officer found that schemes to open the first deep coalmine in the UK for three decades, in Cumbria, were unlawfully approved by the previous government, which had agreed to the bizarre claim that the mine would have had zero effect on national carbon targets. The new government later cancelled the permission the former government had granted. Today, this success could be compromised by an foreign court accountable to exclusively the companies bringing the case.

Last August, a corporate entity whose ultimate owners are based in the tax haven lodged a claim versus the UK government. The previous week a dispute settlement body in the United States was convened to hear it.

The company is litigating against the UK for the revenue it might have made if the mine had been allowed to commence operations. Citizens have little idea how much this might be. Which individual is representing it in opposition to the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The government passes a law, the national judiciary validates it, then a foreign company challenges it through an secretive arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Case

Concurrently that the court on the coal mine dispute was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know nothing of the case so far, but it is highly possible that he may employ the arbitration process to challenge the restrictions the UK levied against him after the war in Ukraine. He has started suing Luxembourg with similar intent, claiming $16bn: equivalent to half of nation's yearly budget. Part of the counsel acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists argue that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This remarkable, secretive influence over democratic administrations may be obstructing the money Ukraine desperately needs.

Empty Promises and Growing Threats

We were assured that such things wouldn’t happen. Previously, a former prime minister, promoting the largest and riskiest of all such treaties, declared: “Britain has agreed to trade deal after trade deal and there has not been a issue in the past.” An expert on this topic labelled critics of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative was crafted to be that only poorer nations should be concerned by ISDS claims. Cautionary notes that “once firms begin to understand the influence bestowed upon them, they will shift their focus from the poorer states to the strong ones” were met with widespread derision.

That warning has now materialised. This year, fossil fuel and mining firms have lodged a unprecedented number of suits against nations rich and poor, challenging – like the example of the Whitehaven project – official measures to prevent climate breakdown. Firms have to date won vast sums through ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP