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Can you perceive our system of government functions? Perhaps similar to this. The public votes for MPs. They debate and pass bills. If a majority is achieved, the bills become law. The law is upheld by the courts. Simple as that. However, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Tribunals

Today, foreign corporations, or the billionaires who own them, can sue elected administrations for the laws they pass, at secret arbitration panels composed of business advocates. These proceedings take place in secret. Differing from national judiciaries, these tribunals provide no opportunity to appeal or legal review. You or I are barred from bringing a case to them, and neither can our government, or even enterprises operating from this country. Access is granted solely for businesses registered abroad.

When a secret court determines that a law or policy could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions of pounds, even billions.

These awards are based not on real financial harm but compensation the tribunal officials decide the company could potentially have made. The government might be compelled to abandon its policy. It will be hesitant to enacting future policies of a similar nature, due to the risk of incurring a lawsuit.

A Mechanism Running Rampant

Record numbers of disputes are being brought, as firms take cues from each other, and hedge funds fund legal actions in exchange for a portion of the settlements. The result? Democratic sovereignty and democracy are now prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the choices made by parliaments is that this stipulation has been inserted – without public consent, and often in a climate of total confidentiality – within international trade agreements.

A Specific Example: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners achieved a major legal triumph at the High Court. The presiding officer ruled that schemes to open the first deep coalmine in the UK for 30 years, in northwest England, had been unlawfully approved by the previous government, which had endorsed the questionable argument that the mine could have no impact on our carbon budgets. The Labour government subsequently revoked the permission the former government had issued. Now, this victory could be compromised by an foreign court answering to no one but the companies petitioning it.

During August, a corporate entity whose ultimate owners reside in the tax haven lodged a claim against the UK government. Last week a dispute settlement body in the US capital was established to adjudicate on it.

This firm is litigating against the UK for the revenue it could have earned if the mine had received permission to commence operations. Citizens have little idea how much this might be. Who is serving as its counsel in opposition to the state? An elected representative, and ex-law officer in the outgoing administration, that great patriot Sir Geoffrey Cox. The administration makes a decision, the national judiciary upholds it, then a overseas corporation challenges it through an undemocratic private court, and a member of our parliament acts on its behalf.

The Russian Challenge

Concurrently that the court on the coalmine case was appointed, we learned from a government response that the UK is also being sued under ISDS by a wealthy Russian individual, an oligarch. The public knows little of the case to date, but it seems likely that he’ll use the tribunal to challenge the sanctions the UK imposed on him after the invasion of Ukraine. He has filed a claim against Luxembourg on these grounds, claiming a colossal sum: half that government’s annual revenue. Part of the counsel on his side? the wife of a former prime minister, spouse of the ex-UK leader.

Trade specialists believe that the EU’s procrastination in leveraging immobilised state funds as collateral for its loan to Ukraine is due to Belgium’s fear that it could be taken to court in the ISDS tribunals, under a trade agreement. This unprecedented, unaccountable authority over democratic administrations could be blocking the finance Ukraine critically depends on.

Misleading Claims and Growing Risks

We were assured that these scenarios were not possible. Years ago, a senior politician, 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 problem in the past.” A consultant on this topic labelled activists of “exaggeration … the truth is, ISDS has little impact on the UK much”. The general impression seemed to be that exclusively weaker states needed to fear such legal actions. Cautionary notes that “once firms begin to understand the authority they’ve been granted, they will redirect their efforts from the vulnerable countries to the wealthy nations” were dismissed with scepticism.

That prediction has now materialised. Recently, oil and gas and resource corporations have filed a historic level of claims against nations rich and poor, challenging – as in the case of the UK mine – state efforts to halt climate breakdown. Corporations have so far won $114bn via ISDS, of which oil majors have obtained the majority. That represents the combined GDP