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How do you reckon our system of government works? Perhaps along the lines of this. Citizens choose MPs. They vote on bills. If a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. Simple as that. However, that was how it used to work. No longer.

The Emergence of Shadow Tribunals

Nowadays, international firms, or the wealthy individuals that control them, can sue nation states for the policies they pass, at private courts composed of corporate lawyers. These proceedings are conducted away from public scrutiny. Unlike our courts, these bodies grant no opportunity to appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even companies operating from this country. The door is open solely for entities based overseas.

Should an arbitration panel rules that a law or policy might diminish the corporation’s expected profits, it has the power to grant damages of vast sums, running into billions.

These sums represent not actual losses but funds the panel members determine the company could potentially have made. The administration might be compelled to rescind the measure. It becomes discouraged from enacting future policies of a similar nature, due to the risk of facing litigation.

A Process Growing Exponentially

Unprecedented levels of disputes are being brought, as corporations observe each other, and investment funds fund legal actions for a share of a share of the awards. The result? Democratic sovereignty and democratic governance are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to override national legislation and the rulings taken by legislatures is that this provision has been incorporated – without public consent, and frequently under a climate of profound opacity – inside international trade agreements.

A Specific Instance: The UK Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The presiding officer found that schemes to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine would have zero effect on national carbon targets. The new government then withdrew the licence the former government had granted. Now, this success could be compromised by an foreign court accountable to exclusively the companies filing the suit.

Last August, a corporate entity whose final controllers are located in the Cayman Islands filed a lawsuit versus the UK government. Last week a dispute settlement body in Washington DC was established to adjudicate on it.

The claimant is suing the UK for the profits it would have generated if the mine had been permitted to commence operations. The public has no clear indication how much this could amount to. Which individual is acting on its behalf against the state? An elected representative, and ex-law officer in the Conservative government, the self-proclaimed patriot Geoffrey Cox. The government enacts a policy, the domestic court validates it, then a foreign company contests it through an undemocratic private court, and a sitting MP represents its behalf.

A Sanctions Lawsuit

Concurrently that the court on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, an oligarch. Details are scarce of the case to date, but it is highly possible that he may employ the tribunal to fight the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has previously filed a claim against Luxembourg on these grounds, claiming a colossal sum: half that state's annual revenue. Part of the legal team representing him there? Cherie Blair, spouse of the ex-UK leader.

Trade specialists argue that the EU’s hesitation in using frozen state funds as collateral for its loan to Ukraine stems from concerns within Belgium that it could be taken to court in the secret arbitration panels, under a trade agreement. This extraordinary, undemocratic power over elected governments could be blocking the finance Ukraine critically depends on.

False Assurances and Mounting Risks

We were assured that these events could not occur. In 2014, a senior politician, championing the most significant and hazardous of all such treaties, declared: “The UK has signed investment treaty upon trade deal and there has never been a issue in the past.” An adviser on this topic accused activists of “exaggeration … in reality, ISDS barely touches the UK much”. The general impression seemed to be that only poorer nations had to worry about such legal actions. Predictions that “as corporations begin to understand the influence they now possess, they will shift their focus from the vulnerable countries to the strong ones” were greeted by general mockery.

That threat has come to pass. In the current period, energy and resource corporations have lodged a historic level of cases against nations both wealthy and developing, opposing – as in the case of the Cumbrian coalmine – government attempts to prevent global warming. Corporations have so far won $114bn via ISDS, of which oil majors have been awarded eighty-four billion dollars. That equates to the combined GDP