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What is your understand our political system functions? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills pass into law. Legislation is upheld by the courts. End of story. Yet, that was how it once functioned. No longer.

The Emergence of Shadow Tribunals

Nowadays, overseas companies, or the oligarchs who own them, have the power to sue nation states for the policies they pass, at private courts composed of corporate lawyers. The cases are held in secret. Differing from national judiciaries, these panels grant no opportunity to appeal or legal review. Ordinary citizens are barred from bringing a case to them, and neither can our government, or even businesses operating from this country. They are open exclusively to businesses based overseas.

If a tribunal determines that a legislative action might diminish the corporation’s projected profits, it has the power to grant damages of hundreds of millions of pounds, running into billions.

This compensation are based not on tangible damages but money the tribunal officials determine the company would perhaps have made. The government may have to abandon its policy. It will be deterred from passing future laws of a similar nature, worried about incurring a lawsuit.

A System Growing Exponentially

Historically high figures of disputes are being brought, as corporations learn from each other, and private equity bankroll lawsuits in exchange for a cut of the awards. The outcome? Sovereignty and democracy are becoming prohibitively expensive.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it is allowed to supersede national legislation and the choices taken by elected bodies is that this provision has been written – without public consent, and often in a climate of profound opacity – inside bilateral investment treaties.

A Specific Case: The UK Coalmine

Last year, environmental campaigners secured a significant win at the senior court. The justice ruled that proposals to dig the first new deep coal mine in the UK for three decades, in northwest England, were found to be illegally sanctioned by the previous government, which had accepted the bizarre claim that the mine would have had zero effect on national carbon targets. The new government later cancelled the permission the former government had issued. Now, this legal outcome could be compromised by an secret arbitration panel accountable to only the entities petitioning it.

Last August, a corporate entity whose ultimate owners are based in the Cayman Islands filed a lawsuit challenging the UK government. Recently a dispute settlement body in the US capital was set up to consider the case.

The company is seeking compensation from the UK for the money it could have earned if the mine had been allowed to proceed. The public has little idea how much this sum represents. Which individual is serving as its counsel in opposition to the British government? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot the MP. The state passes a law, the national judiciary upholds it, then a foreign company disputes it through an unaccountable private court, and a elected official represents its behalf.

An Oligarch's Case

On the same day that the tribunal on the mining lawsuit was appointed, it was revealed from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. The public knows little of the case at present, but it seems likely that he’ll use the arbitration process to fight the sanctions the UK levied against him following the invasion of Ukraine. He has filed a claim against Luxembourg with similar intent, demanding sixteen billion dollars: half that nation's annual revenue. Among the counsel on his side? a prominent lawyer, married to the previous PM.

Trade specialists argue that the EU’s delay in utilising seized state funds as security for its aid for Ukraine stems from apprehension in Brussels that it could be sued in the offshore corporate courts, under a investment pact. This remarkable, unaccountable authority over elected governments could be blocking the finance Ukraine desperately needs.

Empty Promises and Escalating Costs

The public was told that these scenarios wouldn’t happen. In 2014, a senior politician, championing the most significant and hazardous of all these agreements, declared: “The UK has signed trade agreement after trade deal and there has not been a issue in the past.” A consultant on this issue accused activists of “exaggeration … in reality, ISDS has little impact on the UK much”. The overall message appeared to be that solely developing countries had to worry about ISDS claims. Predictions that “once firms start to realise the authority bestowed upon them, they will redirect their efforts from the weak nations to the wealthy nations” were met with general mockery.

That threat is now a reality. In the current period, energy and resource corporations have filed a unprecedented number of cases against nations rich and poor, opposing – as in the case of the Whitehaven project – official measures to halt environmental catastrophe. Corporations have so far won one hundred and fourteen billion dollars by using ISDS, of which oil majors have obtained $84bn. That is equivalent to the combined GDP