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How do you reckon our political system works? It could be something like this. The public votes for MPs. They debate and pass bills. Should a majority is secured, the bills are enacted as law. Statutes is upheld by the courts. That's it. However, that was how it used to work. Not anymore.

The Emergence of Shadow Tribunals

In the modern era, foreign corporations, and the wealthy individuals that control them, have the power to sue governments for the regulations they pass, at offshore tribunals staffed by corporate lawyers. The cases are held behind closed doors. Differing from national judiciaries, these panels grant no avenue for appeal or judicial review. The general public cannot take a case to them, just as our government, or even businesses operating from this country. Access is granted solely for entities operating from foreign soil.

If a tribunal rules that a law or policy might diminish the corporation’s projected profits, it may order damages of hundreds of millions of pounds, even billions.

This compensation represent not tangible damages but money the arbitrators decide the company would perhaps have made. The administration may have to drop the legislation. It becomes discouraged from enacting future policies in that area, due to the risk of facing litigation.

A Process Running Rampant

Historically high figures of disputes are being filed, as companies learn from each other, and private equity finance suits in return for a cut of the settlements. The outcome? National sovereignty and democracy are turning into unaffordable.

The process is called “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the choices made by legislatures is that this stipulation has been inserted – without democratic mandate, and frequently under conditions of profound opacity – inside bilateral investment treaties.

A Real-World Example: The Whitehaven Coal Mine

Twelve months ago, environmental campaigners won a great victory at the high court. The presiding officer found that plans to excavate the first deep coalmine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had no impact on national carbon targets. The Labour government then withdrew the licence the former government had issued. Currently, this success faces being overturned by an offshore tribunal answering to exclusively the corporations bringing the case.

During August, a company whose ultimate owners reside in the tax haven initiated proceedings against the UK government. The previous week a arbitration panel in the United States was convened to consider the case.

This firm is suing the UK for the profits it would have generated if the mine had received permission to commence operations. We have no idea how much this sum represents. Who is serving as its counsel in opposition to the British government? A member of parliament, and previous senior legal advisor in the Conservative government, that great patriot the MP. The state makes a decision, the domestic court upholds it, then a overseas corporation challenges it through an secretive private court, and a member of our parliament works for its behalf.

A Sanctions Case

Concurrently that the court on the coalmine case was convened, it was revealed from a government response that the UK is subject to further litigation under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case at present, but it is highly possible that he’ll use the ISDS mechanism to fight the penalties the UK levied against him after the Russian aggression. He has previously started suing a small nation for this reason, claiming $16bn: half that government’s yearly income. Part of the lawyers acting for him in that case? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars contend that the EU’s hesitation in leveraging immobilised Russian assets as collateral for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This extraordinary, unaccountable authority over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Mounting Threats

Politicians promised that these scenarios were not possible. In 2014, a government leader, promoting the most significant and hazardous of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and there has never been a case in the past.” An adviser on this matter accused critics of “scaremongering … the fact is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that only poorer nations needed to fear ISDS claims. Predictions that “as corporations begin to understand the power they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were met with widespread derision.

That warning has now materialised. In the current period, energy and resource corporations have lodged a unprecedented number of claims against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – government attempts to prevent global warming. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which fossil fuel companies have secured eighty-four billion dollars. That is equivalent to the combined GDP