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What is your reckon our system of government operates? Perhaps similar to this. The public votes for MPs. They vote on bills. If a majority is secured, the bills pass into law. Statutes are enforced by the courts. End of story. However, that was how it used to work. Not anymore.

The Rise of Shadow Tribunals

Nowadays, overseas companies, or the wealthy individuals that control them, can sue nation states for the regulations they pass, at private courts composed of corporate lawyers. These proceedings are held behind closed doors. Unlike our courts, these panels provide no avenue for appeal or legal review. The general public are unable to file a case to them, just as our government, including companies headquartered in this country. The door is open exclusively to businesses operating from foreign soil.

When a secret court finds that a government measure might diminish the corporation’s projected profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These sums represent not actual losses but money the arbitrators decide the company might otherwise have made. The state may have to abandon its policy. It is hesitant to enacting future policies of a similar nature, worried about being sued.

A Process Growing Exponentially

Historically high figures of disputes are being brought, as corporations learn from each other, and private equity finance suits in exchange for a portion of the settlements. The outcome? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the rulings taken by parliaments is that this clause has been written – without democratic mandate, and frequently under an atmosphere of extreme secrecy – inside international trade agreements.

A Concrete Example: The Cumbrian Coal Mine

A year ago, activists secured a significant win at the high court. The justice found that proposals to dig the first major coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be illegally sanctioned by the previous government, which had accepted the extraordinary assertion that the mine could have no consequence on climate commitments. The new government then withdrew the licence the former government had issued. Today, this victory faces being overturned by an secret arbitration panel accountable to no one but the corporations bringing the case.

Last August, a corporate entity whose final controllers are based in the tax haven filed a lawsuit versus the UK government. Last week a arbitration panel in the US capital was convened to adjudicate on it.

This firm is seeking compensation from the UK for the profits it could have earned if the mine had received permission to proceed. We have no clear indication how much this might be. What legal team is serving as its counsel in opposition to the UK administration? A sitting MP, and ex-law officer in the previous government, the noted patriot the MP. The government enacts a policy, the high court upholds it, then a overseas corporation disputes it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

An Oligarch's Lawsuit

Simultaneously that the court on the mining lawsuit was established, information emerged from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. Details are nothing of the case at present, but it is highly possible that he will utilise the ISDS mechanism to contest the sanctions the UK imposed on him after the Russian aggression. He has initiated proceedings against a small nation on these grounds, demanding sixteen billion dollars: an amount representing half government’s yearly income. Part of the legal team acting for him in that case? Cherie Blair, wife of the ex-UK leader.

Trade specialists argue that the EU’s delay in utilising seized Russian assets as security for its aid for Ukraine is due to concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This unprecedented, secretive influence over sovereign states may be obstructing the funds Ukraine desperately needs.

Empty Promises and Mounting Costs

Politicians promised that these events could not occur. Previously, a former prime minister, championing the largest and riskiest of all such treaties, stated: “We’ve signed trade agreement after trade deal and we have never seen a problem in the past.” A consultant on this matter labelled critics of “exaggeration … the truth is, ISDS barely touches the UK much”. The overall message appeared to be that only poorer nations should be concerned by such legal actions. Warnings that “as corporations grasp the authority they now possess, they will shift their focus from the vulnerable countries to the wealthy nations” were greeted by general mockery.

That prediction is now a reality. In the current period, energy and extraction companies have filed a record number of claims against nations both wealthy and developing, opposing – as in the case of the Whitehaven project – state efforts to prevent global warming. Firms have so far won one hundred and fourteen billion dollars via ISDS, of which oil majors have secured eighty-four billion dollars. That is equivalent to the combined GDP