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How do you perceive our system of government works? It could be something like this. The public votes for MPs. They legislate on bills. Should a majority is achieved, the bills become law. The law are enforced by the courts. End of story. Well, that used to be how it once functioned. Those days are over.

The Advent of Shadow Tribunals

Today, international firms, along with the wealthy individuals that control them, can sue nation states for the laws they pass, at offshore tribunals staffed by business advocates. These proceedings are held behind closed doors. In contrast to domestic courts, these panels provide no right of appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even enterprises headquartered in this country. Access is granted exclusively to businesses operating from foreign soil.

Should an arbitration panel rules that a legislative action may compromise the corporation’s expected profits, it may order damages of hundreds of millions, even billions.

These sums are based not on actual losses but money the arbitrators conclude the company might otherwise have made. The administration might be compelled to drop the legislation. It becomes deterred from enacting future policies along the same lines, due to the risk of being sued.

A System Running Rampant

Unprecedented levels of legal actions are being initiated, as corporations learn from each other, and investment funds finance suits for a share of a portion of the settlements. The consequence? Democratic sovereignty and democracy are becoming prohibitively expensive.

The process is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the choices made by legislatures is that this provision has been written – without public consent, and frequently under an atmosphere of profound opacity – into trade treaties.

A Real-World Instance: The Whitehaven Coal Mine

A year ago, activists achieved a major legal triumph at the High Court. The judge ruled that plans to dig the first new deep coal mine in the UK for three decades, at Whitehaven in Cumbria, had been unlawfully approved by the outgoing administration, which had agreed to the questionable argument that the mine would have had no impact on national carbon targets. The new government then withdrew the consent the Tories had issued. Currently, this success faces being overturned by an offshore tribunal answering to exclusively the corporations petitioning it.

Last August, a corporate entity whose ultimate owners are based in the tax haven lodged a claim challenging the UK government. Last week a dispute settlement body in the United States was established to consider the case.

The company is litigating against the UK for the money it would have generated if the mine had been allowed to commence operations. We have little idea how much this could amount to. What legal team is acting on its behalf challenging the UK administration? An elected representative, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The government makes a decision, the national judiciary validates it, then a international entity disputes it through an undemocratic offshore tribunal, and a sitting MP works for its behalf.

The Russian Challenge

Concurrently that the panel on the coalmine case was convened, information emerged from a government response that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. Details are nothing of the case to date, but it is highly possible that he’ll use the ISDS mechanism to fight the restrictions the UK imposed on him subsequent to the war in Ukraine. He has previously started suing a small nation with similar intent, demanding sixteen billion dollars: equivalent to half of government’s yearly budget. Part of the legal team on his side? a prominent lawyer, wife of the former British prime minister.

Legal experts contend that the EU’s procrastination in utilising seized state funds as guarantee for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the offshore corporate courts, under a bilateral investment treaty. This remarkable, secretive influence over sovereign states could be blocking the finance Ukraine critically depends on.

False Assurances and Escalating Risks

We were assured that these scenarios could not occur. In 2014, a senior politician, promoting the largest and riskiest of all such treaties, told us: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” An expert on this matter labelled activists of “alarmism … the truth is, ISDS barely touches the UK much”. The prevailing narrative appeared to be that only poorer nations needed to fear ISDS claims. Warnings that “when companies grasp the influence bestowed upon them, they will turn their attention from the poorer states to the developed economies” were greeted by scepticism.

That threat is now a reality. In the current period, energy and extraction companies have filed a historic level of suits against nations across the economic spectrum, challenging – similar to the Whitehaven project – official measures to prevent climate breakdown. Companies have thus far won vast sums via ISDS, of which energy giants have obtained eighty-four billion dollars. That represents the combined GDP