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What is your reckon our system of government functions? Maybe similar to this. We elect MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. Yet, that was how it used to work. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, foreign corporations, or the oligarchs behind them, can sue elected administrations for the regulations they pass, at offshore tribunals staffed by commercial attorneys. Such disputes take place behind closed doors. Differing from national judiciaries, these tribunals provide no avenue for appeal or oversight by judges. The general public are unable to file a case to them, just as our government, or even companies operating from this country. The door is open only to corporations registered abroad.

If a tribunal finds that a law or policy could harm the corporation’s expected profits, it may order compensation of hundreds of millions of pounds, running into billions.

This compensation constitute not tangible damages but compensation the tribunal officials conclude the company would perhaps have made. The government may have to abandon its policy. It becomes hesitant to introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Mechanism Spiralling Out of Control

Record numbers of legal actions are being initiated, as companies learn from each other, and private equity bankroll lawsuits in return for a share of the settlements. The consequence? Sovereignty and popular rule are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to supersede national legislation and the choices enacted by legislatures is that this clause has been written – absent public approval, and frequently under an atmosphere of profound opacity – into trade treaties.

A Concrete Instance: The UK Coal Mine

Twelve months ago, activists secured a significant win at the High Court. The judge found that schemes to excavate the first major coal mine in the UK for 30 years, in northwest England, were illegally sanctioned by the Conservative government, which had endorsed the questionable argument that the mine could have no impact on national carbon targets. The incoming administration then withdrew the licence the Tories had granted. Today, this legal outcome faces being overturned by an offshore tribunal answering to exclusively the companies filing the suit.

Last August, a company whose beneficial owners reside in the offshore financial centre initiated proceedings versus the UK government. Recently a tribunal in the US capital was set up to adjudicate on it.

This firm is litigating against the UK for the revenue it would have generated if the mine had been permitted to commence operations. Citizens have little idea how much this might be. Which individual is serving as its counsel challenging the state? A member of parliament, and ex-law officer in the outgoing administration, the self-proclaimed patriot the MP. The government enacts a policy, the national judiciary validates it, then a international entity contests it through an undemocratic private court, and a elected official works for its behalf.

A Sanctions Challenge

On the same day that the panel on the coalmine case was convened, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case so far, but it seems likely that he’ll use the arbitration process to challenge the sanctions the UK enacted against him following the war in Ukraine. He has initiated proceedings against a small nation on these grounds, claiming sixteen billion dollars: half that nation's yearly budget. Part of the lawyers acting for him in that case? the wife of a former prime minister, married to the previous PM.

Trade specialists contend that the EU’s procrastination in utilising seized state funds as security for its loan to 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 elected governments may be obstructing the money Ukraine critically depends on.

False Assurances and Mounting Risks

The public was told that such things wouldn’t happen. Previously, a government leader, advocating for the biggest and most dangerous of all such treaties, told us: “We’ve signed trade deal after trade deal and we have never seen a issue in the past.” A consultant on this matter described activists of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries needed to fear such legal actions. Cautionary notes that “when companies start to realise the influence they now possess, they will shift their focus from the weak nations to the developed economies” were met with general mockery.

That threat has now materialised. In the current period, energy and resource corporations have initiated a historic level of claims against nations both wealthy and developing, contesting – similar to the UK mine – state efforts to stop global warming. Firms have so far won vast sums via ISDS, of which energy giants have obtained the majority. That equates to the combined GDP