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Can you perceive our system of government functions? It could be along the lines of this. The public votes for MPs. They legislate on bills. When a majority is obtained, the bills become law. The law are enforced by the courts. End of story. However, that’s how it operated in the past. Those days are over.

The Emergence of Shadow Tribunals

In the modern era, foreign corporations, or the oligarchs that control them, can sue governments for the laws they pass, at secret arbitration panels staffed by commercial attorneys. Such disputes are conducted in secret. Differing from national judiciaries, these tribunals provide no opportunity to appeal or judicial review. Ordinary citizens are unable to file a case to them, nor can our government, including enterprises based in this country. They are open solely for businesses registered abroad.

Should an arbitration panel determines that a law or policy could harm the corporation’s anticipated profits, it may order financial penalties of vast sums, potentially billions.

These awards constitute not actual losses but money the panel members determine the company could potentially have made. The state might be compelled to abandon its policy. It becomes deterred from passing future laws of a similar nature, worried about incurring a lawsuit.

A System Growing Exponentially

Record numbers of cases are being initiated, as firms observe each other, and investment funds bankroll lawsuits for a share of a cut of the takings. The outcome? National sovereignty and popular rule are becoming unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the rulings made by elected bodies is that this clause has been written – absent public approval, and typically amid a climate of total confidentiality – within bilateral investment treaties.

A Concrete Example: The Cumbrian Coalmine

Twelve months ago, a conservation group achieved a major legal triumph at the high court. The justice found that plans to excavate the first deep coalmine in the UK for 30 years, in Cumbria, had been wrongly permitted by the previous government, which had endorsed the questionable argument that the mine could have zero effect on our carbon budgets. The new government later cancelled the permission the previous administration had granted. Currently, this legal outcome could be compromised by an offshore tribunal reporting to exclusively the corporations filing the suit.

Last August, a corporate entity whose beneficial owners are located in the Cayman Islands initiated proceedings challenging the UK government. Recently a tribunal in the United States was established to hear it.

The claimant is litigating against the UK for the profits it could have earned if the mine had received permission to commence operations. We have no idea how much this sum represents. Who is representing it challenging the state? An elected representative, and former attorney-general in the outgoing administration, the self-proclaimed patriot the MP. The state makes a decision, the high court supports it, then a international entity challenges it through an secretive private court, and a sitting MP represents its behalf.

A Sanctions Case

On the same day that the tribunal on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows little of the case to date, but it is highly possible that he may employ the ISDS mechanism to challenge the sanctions the UK enacted against him following the invasion of Ukraine. He has previously initiated proceedings against Luxembourg with similar intent, demanding $16bn: half that state's annual revenue. Included in the counsel on his side? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars argue that the EU’s procrastination in leveraging immobilised state funds as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be subject to litigation in the secret arbitration panels, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states might be preventing the finance Ukraine urgently requires.

Misleading Claims and Mounting Costs

The public was told that these events could not occur. In 2014, a former prime minister, promoting the biggest and most dangerous of all investment pacts, told us: “We’ve signed trade agreement after trade deal and we have never seen a issue in the past.” An expert on this matter labelled campaigners of “scaremongering … in reality, ISDS barely touches the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear these lawsuits. Warnings that “when companies grasp the authority they now possess, they will redirect their efforts from the weak nations to the developed economies” were greeted by scepticism.

That warning is now a reality. This year, oil and gas and extraction companies have filed a historic level of cases against nations across the economic spectrum, contesting – similar to the UK mine – official measures to prevent environmental catastrophe. Corporations have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have obtained the majority. That represents the combined GDP