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Can you perceive our system of government functions? Maybe similar to this. Citizens choose MPs. They legislate on bills. When a majority is obtained, the bills are enacted as law. The law are enforced by the courts. Simple as that. Well, that used to be how it once functioned. Those days are over.

The Emergence of Shadow Tribunals

In the modern era, foreign corporations, or the oligarchs that control them, are able to litigate against elected administrations for the regulations they pass, at offshore tribunals composed of corporate lawyers. The cases are conducted away from public scrutiny. Unlike our courts, these tribunals provide no avenue for appeal or legal review. Ordinary citizens are unable to file a case to them, just as our government, or even enterprises based in this country. The door is open exclusively to businesses operating from foreign soil.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it may order financial penalties of vast sums, even billions.

This compensation constitute not tangible damages but money the panel members decide the company would perhaps have made. The government could be forced to abandon its policy. It is discouraged from passing future laws along the same lines, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Unprecedented levels of disputes are being filed, as companies take cues from each other, and investment funds bankroll lawsuits in exchange for a portion of the settlements. The outcome? National sovereignty and popular rule are becoming unaffordable.

The process is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the rulings made by legislatures is that this stipulation has been inserted – without democratic mandate, and typically amid a climate of total confidentiality – into trade treaties.

A Concrete Case: The UK Coal Mine

A year ago, a conservation group achieved a major legal triumph at the high court. The justice found that schemes to open the first major coal mine in the UK for three decades, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had endorsed the extraordinary assertion that the mine would have had zero effect on our carbon budgets. The new government subsequently revoked the licence the former government had issued. Currently, this legal outcome faces being overturned by an secret arbitration panel accountable to only the corporations petitioning it.

Last August, a corporate entity whose beneficial owners are located in the tax haven lodged a claim versus the UK government. The previous week a arbitration panel in Washington DC was established to adjudicate on it.

This firm is suing the UK for the money it would have generated if the mine had been permitted to commence operations. The public has no idea how much this might be. Which individual is serving as its counsel against the UK administration? A member of parliament, and previous senior legal advisor in the outgoing administration, the self-proclaimed patriot the MP. The government makes a decision, the domestic court validates it, then a foreign company disputes it through an unaccountable arbitration panel, and a elected official works for its behalf.

A Sanctions Lawsuit

Concurrently that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. Details are little of the case to date, but it seems likely that he’ll use the ISDS mechanism to fight the sanctions the UK levied against him following the war in Ukraine. He has previously initiated proceedings against Luxembourg on these grounds, seeking $16bn: equivalent to half of state's yearly income. Included in the legal team acting for him in that case? a prominent lawyer, wife of the previous PM.

Legal experts believe that the EU’s procrastination in utilising seized Russian assets as security for its financial support package is due to concerns within Belgium that it could be sued in the offshore corporate courts, under a trade agreement. This remarkable, unaccountable authority over elected governments could be blocking the money Ukraine critically depends on.

Misleading Claims and Growing Threats

Politicians promised that these scenarios wouldn’t happen. Years ago, a government leader, advocating for the biggest and most dangerous of all such treaties, told us: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” An adviser on this matter described critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Warnings that “when companies start to realise the power they’ve been granted, they will shift their focus from the vulnerable countries to the wealthy nations” were met with general mockery.

That prediction has now materialised. Recently, oil and gas and extraction companies have initiated a unprecedented number of cases against nations across the economic spectrum, contesting – as in the case of the Cumbrian coalmine – government attempts to stop climate breakdown. Corporations have to date won vast sums via ISDS, of which energy giants have secured eighty-four billion dollars. That represents the combined GDP