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How do you understand our political system functions? Maybe something like this. Citizens choose MPs. They debate and pass bills. When a majority is achieved, the bills are enacted as law. Statutes is upheld by the courts. Simple as that. Yet, that’s how it once functioned. Those days are over.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, and the billionaires who own them, can sue governments for the policies they pass, at secret arbitration panels staffed by business advocates. These proceedings take place behind closed doors. Differing from national judiciaries, these tribunals allow no opportunity to appeal or judicial review. The general public 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 businesses operating from foreign soil.

When a secret court finds that a law or policy might diminish the corporation’s projected profits, it can award financial penalties of vast sums, even billions.

These sums represent not real financial harm but money the panel members decide the company would perhaps have made. The state might be compelled to abandon its policy. It becomes deterred from enacting future policies in that area, for fear of facing litigation.

A Process Spiralling Out of Control

Record numbers of disputes are being brought, as firms observe each other, and investment funds bankroll lawsuits in return for a cut of the takings. The outcome? Sovereignty and democracy are becoming too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is permitted to supersede national legislation and the rulings taken by legislatures is that this stipulation has been written – without public consent, and frequently under an atmosphere of total confidentiality – within trade treaties.

A Concrete Case: The Cumbrian Coalmine

A year ago, environmental campaigners won a great victory at the senior court. The presiding officer ruled that proposals to open the first new deep coal mine in the UK for three decades, in northwest England, were found to be unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have no impact on our carbon budgets. The new government then withdrew the licence the previous administration had approved. Now, this victory is under threat by an secret arbitration panel reporting to no one but the corporations petitioning it.

During August, a corporate entity whose ultimate owners are located in the tax haven initiated proceedings against the UK government. Recently a tribunal in Washington DC was established to consider the case.

The company is litigating against the UK for the profits it would have generated if the mine had been permitted to go ahead. The public has little idea how much this could amount to. Who is serving as its counsel in opposition to the state? An elected representative, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The government makes a decision, the domestic court supports it, then a overseas corporation contests it through an undemocratic arbitration panel, and a elected official acts on its behalf.

The Russian Challenge

On the same day that the panel on the mining lawsuit was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case at present, but it appears probable that he will utilise the ISDS mechanism to fight the sanctions the UK enacted against him after the war in Ukraine. He has already started suing another European state for this reason, demanding sixteen billion dollars: half that government’s yearly income. Among the lawyers representing him there? the wife of a former prime minister, wife of the former British prime minister.

International law scholars believe that the EU’s hesitation in using frozen oligarchs' funds as guarantee for its loan to Ukraine is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Mounting Threats

The public was told that such things could not occur. Years ago, a senior politician, promoting the biggest and most dangerous of all investment pacts, declared: “Britain has agreed to trade agreement after trade deal and we have never seen a case in the past.” An expert on this matter accused critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations needed to fear these lawsuits. Cautionary notes that “once firms grasp the authority they’ve been granted, they will shift their focus from the poorer states to the strong ones” were met with general mockery.

That warning has come to pass. In the current period, fossil fuel and mining firms have filed a historic level of claims against nations across the economic spectrum, challenging – like the example of the Whitehaven project – government attempts to stop climate breakdown. Companies have so far won vast sums by using ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That represents the combined GDP