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What is your perceive our system of government operates? Perhaps something like this. The public votes for MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. However, that’s how it used to work. Those days are over.

The Advent of Shadow Tribunals

In the modern era, overseas companies, and the wealthy individuals behind them, can sue governments for the regulations they pass, at offshore tribunals composed of commercial attorneys. These proceedings take place away from public scrutiny. Differing from national judiciaries, these bodies grant no right of appeal or judicial review. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises operating from this country. The door is open solely for businesses registered abroad.

When a secret court determines that a government measure might diminish the corporation’s projected profits, it has the power to grant damages of vast sums, even billions.

These sums constitute not real financial harm but compensation the arbitrators determine the company could potentially have made. The government could be forced to rescind the measure. It becomes deterred from introducing similar legislation of a similar nature, due to the risk of being sued.

A System Spiralling Out of Control

Historically high figures of disputes are being filed, as firms learn from each other, and private equity bankroll lawsuits in exchange for a portion of the settlements. The outcome? Sovereignty and democratic governance are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the decisions made by legislatures is that this provision has been incorporated – absent public approval, and typically amid conditions of profound opacity – within international trade agreements.

A Concrete Example: The Cumbrian Coal Mine

Twelve months ago, activists achieved a major legal triumph at the senior court. The presiding officer found that schemes to dig the first new deep coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the outgoing administration, which had endorsed the questionable argument that the mine would have had no impact on climate commitments. The Labour government subsequently revoked the licence the former government had granted. Today, this legal outcome could be compromised by an offshore tribunal answering to only the entities petitioning it.

During August, a corporate entity whose beneficial owners are based in the tax haven filed a lawsuit challenging the UK government. Last week a tribunal in the United States was set up to hear it.

This firm is seeking compensation from the UK for the profits it might have made if the mine had been permitted to go ahead. We have no idea how much this sum represents. Which individual is serving as its counsel in opposition to the British government? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot Sir Geoffrey Cox. The government passes a law, the high court upholds it, then a overseas corporation contests it through an undemocratic arbitration panel, and a elected official represents its behalf.

A Sanctions Case

Simultaneously that the tribunal on the coalmine case was convened, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a wealthy Russian individual, a sanctioned individual. Details are nothing of the case so far, but it seems likely that he’ll use the tribunal to challenge the restrictions the UK levied against him after the war in Ukraine. He has already initiated proceedings against another European state for this reason, claiming $16bn: equivalent to half of nation's annual revenue. Part of the legal team representing him there? a prominent lawyer, wife of the ex-UK leader.

Legal experts contend that the EU’s procrastination in leveraging immobilised oligarchs' funds 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 extraordinary, secretive influence over sovereign states may be obstructing the funds Ukraine desperately needs.

Empty Promises and Escalating Threats

Politicians promised that these scenarios could not occur. Years ago, a former prime minister, championing the biggest and most dangerous of all investment pacts, stated: “Britain has agreed to trade deal after trade deal and there has never been a issue in the past.” An expert on this matter accused campaigners of “exaggeration … the fact is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations had to worry about such legal actions. Cautionary notes that “as corporations grasp the authority they now possess, they will turn their attention from the weak nations to the developed economies” were greeted by widespread derision.

That threat has come to pass. This year, fossil fuel and extraction companies have filed a unprecedented number of claims against nations across the economic spectrum, opposing – similar to the Whitehaven project – state efforts to prevent climate breakdown. Companies have to date won vast sums via ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP