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Can you reckon our political system operates? Maybe along the lines of this. The public votes for MPs. They vote on bills. If a majority is secured, the bills become law. Statutes is maintained by the courts. End of story. Well, that’s how it operated in the past. Those days are over.

The Emergence of Shadow Tribunals

In the modern era, international firms, and the wealthy individuals that control them, can sue nation states for the policies they pass, at offshore tribunals staffed by commercial attorneys. Such disputes are conducted behind closed doors. In contrast to domestic courts, these panels provide no avenue for appeal or legal review. The general public cannot take a case to them, nor can our government, or even companies headquartered in this country. Access is granted exclusively to businesses registered abroad.

When a secret court rules that a government measure might diminish the corporation’s expected profits, it has the power to grant compensation of hundreds of millions, potentially billions.

These sums are based not on tangible damages but money the panel members determine the company would perhaps have made. The government could be forced to abandon its policy. It becomes discouraged from passing future laws in that area, for fear of facing litigation.

A Mechanism Growing Exponentially

Unprecedented levels of disputes are being initiated, as companies observe each other, and private equity finance suits in exchange for a cut of the takings. The outcome? Democratic sovereignty and popular rule are now prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the choices taken by parliaments is that this clause has been incorporated – without democratic mandate, and frequently under conditions of total confidentiality – within international trade agreements.

A Specific Example: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The judge found that proposals to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the Conservative government, which had accepted the questionable argument that the mine could have no impact on national carbon targets. The new government then withdrew the licence the Tories had granted. Currently, this legal outcome is under threat by an secret arbitration panel accountable to no one but the corporations filing the suit.

Last August, a company whose beneficial owners are based in the offshore financial centre lodged a claim challenging the UK government. The previous week a tribunal in the United States was set up to adjudicate on it.

The company is litigating against the UK for the revenue it would have generated if the mine had received permission to proceed. The public has no clear indication how much this might be. What legal team is acting on its behalf in opposition to the British government? An elected representative, and previous senior legal advisor in the Conservative government, that great patriot the MP. The administration enacts a policy, the domestic court upholds it, then a international entity disputes it through an undemocratic arbitration panel, and a elected official represents its behalf.

The Russian Challenge

Simultaneously that the court on the coalmine case was appointed, information emerged from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case so far, but it is highly possible that he’ll use the arbitration process to fight the sanctions the UK imposed on him subsequent to the invasion of Ukraine. He has filed a claim against a small nation with similar intent, demanding a colossal sum: an amount representing half state's annual revenue. Among the legal team representing him there? a prominent lawyer, spouse of the former British prime minister.

Legal experts argue that the EU’s procrastination in using frozen Russian assets as guarantee for its aid for Ukraine is due to apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This unprecedented, unaccountable authority over elected governments may be obstructing the money Ukraine urgently requires.

False Assurances and Mounting Costs

The public was told that such things wouldn’t happen. Years ago, a government leader, advocating for the largest and riskiest of all these agreements, declared: “The UK has signed trade deal after trade deal and there has not been a issue in the past.” An expert on this topic labelled campaigners of “alarmism … the fact is, ISDS has little impact on the UK much”. The general impression was crafted to be that solely developing countries needed to fear ISDS claims. Predictions that “once firms grasp the influence they now possess, they will turn their attention from the weak nations to the developed economies” were met with general mockery.

That warning has come to pass. In the current period, energy and extraction companies have initiated a unprecedented number of claims against nations across the economic spectrum, contesting – like the example of the Cumbrian coalmine – state efforts to halt global warming. Corporations have to date won vast sums via ISDS, of which oil majors have secured eighty-four billion dollars. That represents the combined GDP