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How do you reckon our political system operates? It could be something like this. We elect MPs. They vote on bills. When a majority is secured, the bills are enacted as law. Legislation is upheld by the courts. Simple as that. Yet, that used to be how it once functioned. No longer.

The Advent of Shadow Tribunals

Today, overseas companies, or the wealthy individuals that control them, are able to litigate against governments for the regulations they pass, at offshore tribunals staffed by corporate lawyers. The cases are conducted away from public scrutiny. Unlike our courts, these bodies grant no right of appeal or oversight by judges. Ordinary citizens cannot take a case to them, just as our government, or even enterprises headquartered in this country. Access is granted solely for corporations operating from foreign soil.

When a secret court finds that a law or policy may compromise the corporation’s projected profits, it has the power to grant financial penalties of vast sums, even billions.

This compensation represent not actual losses but compensation the panel members decide the company might otherwise have made. The government may have to drop the legislation. It will be deterred from enacting future policies in that area, worried about facing litigation.

A Mechanism Running Rampant

Record numbers of legal actions are being filed, as firms learn from each other, and private equity finance suits in exchange for a share of the takings. The result? Democratic sovereignty and democratic governance are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the decisions enacted by parliaments is that this provision has been incorporated – absent public approval, and often in an atmosphere of extreme secrecy – into bilateral investment treaties.

A Real-World Example: The UK Coal Mine

Last year, environmental campaigners secured a significant win at the High Court. The judge determined that proposals to dig the first deep coalmine in the UK for a generation, in Cumbria, were illegally sanctioned by the Conservative government, which had accepted the bizarre claim that the mine would have no consequence on climate commitments. The incoming administration later cancelled the permission the previous administration had approved. Now, this victory faces being overturned by an secret arbitration panel accountable to no one but the entities petitioning it.

In August, a firm whose final controllers reside in the Cayman Islands initiated proceedings versus the UK government. The previous week a tribunal in Washington DC was convened to adjudicate on it.

The company is litigating against the UK for the money it would have generated if the mine had been permitted to commence operations. Citizens have little idea how much this sum represents. Which individual is serving as its counsel challenging the state? A sitting MP, and former attorney-general in the outgoing administration, that great patriot the MP. The administration passes a law, the high court validates it, then a international entity contests it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Case

Concurrently that the tribunal on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are scarce of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the restrictions the UK imposed on him subsequent to the invasion of Ukraine. He has already started suing a small nation on these grounds, claiming $16bn: half that state's yearly income. Among the legal team representing him there? the wife of a former prime minister, married to the ex-UK leader.

International law scholars believe that the EU’s delay in leveraging immobilised oligarchs' funds as security for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states may be obstructing the money Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that such things wouldn’t happen. Years ago, a senior politician, promoting the most significant and hazardous of all such treaties, stated: “We’ve signed investment treaty after trade deal and there has not been a issue in the past.” A consultant on this topic accused campaigners of “scaremongering … the fact is, ISDS does not affect the UK much”. The general impression seemed to be that solely developing countries had to worry about these lawsuits. Cautionary notes that “as corporations begin to understand the authority bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were dismissed with scepticism.

That warning has come to pass. In the current period, oil and gas and resource corporations have initiated a historic level of suits against nations rich and poor, challenging – similar to the Cumbrian coalmine – state efforts to halt climate breakdown. Corporations have to date won vast sums through ISDS, of which fossil fuel companies have secured $84bn. That represents the combined GDP