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How do you reckon our system of government functions? Perhaps along the lines of this. Citizens choose MPs. They legislate on bills. Should a majority is secured, the bills pass into law. Statutes is upheld by the courts. End of story. Yet, that’s how it used to work. Not anymore.

The Emergence of Shadow Tribunals

In the modern era, foreign corporations, along with the wealthy individuals who own them, have the power to sue nation states for the policies they pass, at private courts made up of business advocates. These proceedings are conducted behind closed doors. Unlike our courts, these bodies allow no opportunity to appeal or judicial review. You or I are barred from bringing a case to them, just as our government, or even businesses operating from this country. They are open only to businesses registered abroad.

When a secret court rules that a legislative action could harm the corporation’s anticipated profits, it has the power to grant compensation of vast sums, running into billions.

These awards are based not on actual losses but funds the arbitrators conclude the company would perhaps have made. The government may have to abandon its policy. It will be discouraged from passing future laws along the same lines, worried about being sued.

A Mechanism Spiralling Out of Control

Historically high figures of legal actions are being initiated, as companies take cues from each other, and investment funds finance suits in return for a portion of the takings. The result? National sovereignty and popular rule are turning into too costly.

This mechanism is known as “investor-state dispute settlement” (ISDS). The reason it can supersede national legislation and the decisions enacted by legislatures is that this clause has been incorporated – absent public approval, and often in a climate of extreme secrecy – within international trade agreements.

A Concrete Instance: The Cumbrian Coalmine

Twelve months ago, environmental campaigners secured a significant win at the high court. The justice found that proposals to open the first deep coalmine in the UK for three decades, in northwest England, had been wrongly permitted by the outgoing administration, which had endorsed the bizarre claim that the mine would have no consequence on national carbon targets. The new government subsequently revoked the consent the Tories had granted. Today, this success could be compromised by an offshore tribunal reporting to exclusively the entities bringing the case.

Last August, a firm whose beneficial owners are based in the tax haven initiated proceedings against the UK government. Last week a dispute settlement body in the United States was convened to hear it.

The claimant is suing the UK for the money it might have made if the mine had received permission to go ahead. We have little idea how much this sum represents. Which individual is acting on its behalf challenging the British government? A member of parliament, and previous senior legal advisor in the previous government, the self-proclaimed patriot the MP. The state makes a decision, the domestic court validates it, then a foreign company challenges it through an unaccountable private court, and a member of our parliament represents its behalf.

The Russian Lawsuit

Concurrently that the panel on the coal mine dispute was established, it was revealed from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. The public knows little of the case to date, but it appears probable that he will utilise the ISDS mechanism to fight the restrictions the UK imposed on him subsequent to the war in Ukraine. He has started suing Luxembourg on these grounds, claiming a colossal sum: an amount representing half state's yearly income. Among the counsel acting for him in that case? a prominent lawyer, wife of the previous PM.

Trade specialists argue that the EU’s procrastination in utilising seized state funds as collateral for its aid for Ukraine arises from concerns within Belgium that it could be sued in the secret arbitration panels, under a trade agreement. This extraordinary, secretive influence over elected governments may be obstructing the money Ukraine critically depends on.

Misleading Claims and Mounting Risks

We were assured that these events were not possible. Years ago, a government leader, advocating for the largest and riskiest of all such treaties, stated: “Britain has agreed to trade deal upon trade deal and we have never seen a case in the past.” An expert on this issue described critics of “exaggeration … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that solely developing countries needed to fear ISDS claims. Warnings that “when companies begin to understand the influence bestowed upon them, they will turn their attention from the weak nations to the strong ones” were greeted by widespread derision.

That threat has now materialised. In the current period, fossil fuel and resource corporations have lodged a record number of claims against nations rich and poor, opposing – similar to the UK mine – government attempts to halt climate breakdown. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which energy giants have secured eighty-four billion dollars. That is equivalent to the combined GDP