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What is your reckon our system of government operates? Perhaps along the lines of this. We elect 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 operated in the past. Those days are over.

The Rise of Shadow Arbitration Panels

Nowadays, foreign corporations, and the billionaires who own them, are able to litigate against governments for the policies they pass, at offshore tribunals staffed by corporate lawyers. Such disputes are conducted in secret. In contrast to domestic courts, these tribunals allow no avenue for appeal or oversight by judges. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses based in this country. The door is open exclusively to corporations based overseas.

When a secret court rules that a legislative action could harm the corporation’s projected profits, it may order financial penalties of vast sums, potentially billions.

These awards are based not on tangible damages but compensation the tribunal officials conclude the company might otherwise have made. The administration might be compelled to rescind the measure. It becomes hesitant to enacting future policies in that area, for fear of facing litigation.

A Mechanism Running Rampant

Record numbers of legal actions are being brought, as firms observe each other, and private equity fund legal actions in return for a share of the takings. The consequence? Sovereignty and popular rule are now prohibitively expensive.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override a country's own laws and the choices taken by parliaments is that this stipulation has been incorporated – without public consent, and typically amid conditions of extreme secrecy – into international trade agreements.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, environmental campaigners secured a significant win at the High Court. The justice determined that plans to excavate the first new deep coal mine in the UK for three decades, in northwest England, had been wrongly permitted by the previous government, which had accepted the questionable argument that the mine would have no impact on national carbon targets. The incoming administration subsequently revoked the licence the Tories had issued. Now, this legal outcome is under threat by an secret arbitration panel accountable to only the companies bringing the case.

Last August, a firm whose beneficial owners reside in the tax haven lodged a claim challenging the UK government. The previous week a dispute settlement body in Washington DC was convened to hear it.

The company is seeking compensation from the UK for the profits it would have generated if the mine had received permission to commence operations. We have little idea how much this could amount to. Which individual is serving as its counsel against the state? A member of parliament, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The administration passes a law, the high court upholds it, then a overseas corporation challenges it through an secretive offshore tribunal, and a member of our parliament represents its behalf.

The Russian Lawsuit

Simultaneously that the tribunal on the coal mine dispute was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, an oligarch. Details are nothing of the case to date, but it seems likely that he’ll use the ISDS mechanism to contest the restrictions the UK enacted against him following the war in Ukraine. He has already started suing Luxembourg with similar intent, claiming $16bn: half that state's yearly budget. Among the lawyers on his side? a prominent lawyer, married to the ex-UK leader.

Trade specialists believe that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package is due to apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments may be obstructing the money Ukraine urgently requires.

Misleading Claims and Escalating Threats

We were assured that such things wouldn’t happen. Years ago, a government leader, advocating for the most significant and hazardous of all such treaties, told us: “We’ve signed trade agreement after trade deal and there has not been a issue in the past.” An adviser on this matter accused activists of “alarmism … the truth is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations should be concerned by ISDS claims. Warnings that “once firms start to realise the power bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were met with general mockery.

That prediction has now materialised. This year, oil and gas and resource corporations have filed a historic level of suits against nations rich and poor, contesting – as in the case of the Whitehaven project – government attempts to halt climate breakdown. Corporations have to date won vast sums via ISDS, of which energy giants have obtained eighty-four billion dollars. That is equivalent to the combined GDP