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How do you reckon our system of government works? Maybe along the lines of this. We elect MPs. They debate and pass bills. Should a majority is obtained, the bills pass into law. Legislation is upheld by the courts. That's it. However, that’s how it used to work. Not anymore.

The Emergence of Shadow Tribunals

In the modern era, international firms, along with the wealthy individuals behind them, have the power to sue nation states for the laws they pass, at private courts composed of commercial attorneys. These proceedings are held behind closed doors. In contrast to domestic courts, these panels allow no opportunity to appeal or judicial review. The general public cannot take a case to them, nor can our government, or even enterprises operating from this country. The door is open solely for businesses registered abroad.

If a tribunal finds that a government measure could harm the corporation’s anticipated profits, it may order compensation of hundreds of millions, running into billions.

These sums constitute not tangible damages but money the arbitrators determine the company could potentially have made. The government could be forced to rescind the measure. It is deterred from introducing similar legislation of a similar nature, due to the risk of being sued.

A System Running Rampant

Unprecedented levels of cases are being initiated, as firms take cues from each other, and investment funds fund legal actions in exchange for a portion of the settlements. The outcome? National sovereignty and democratic governance are becoming unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump national legislation and the choices enacted by parliaments is that this provision has been written – without democratic mandate, and typically amid a climate of profound opacity – into trade treaties.

A Specific Instance: The Whitehaven Coal Mine

Last year, environmental campaigners achieved a major legal triumph at the senior court. The judge determined that plans to open the first new deep coal mine in the UK for 30 years, in northwest England, were wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have had no consequence on our carbon budgets. The new government then withdrew the licence the Tories had granted. Today, this victory is under threat by an foreign court reporting to no one but the corporations bringing the case.

During August, a corporate entity whose final controllers reside in the offshore financial centre filed a lawsuit versus the UK government. Last week a tribunal in Washington DC was convened to adjudicate on it.

This firm is litigating against the UK for the profits it would have generated if the mine had been permitted to go ahead. The public has little idea how much this sum represents. Who is serving as its counsel challenging the UK administration? A sitting MP, and previous senior legal advisor in the previous government, that great patriot the MP. The government makes a decision, the high court validates it, then a foreign company challenges it through an secretive offshore tribunal, and a elected official acts on its behalf.

A Sanctions Challenge

Concurrently that the tribunal on the coal mine dispute was established, we learned from a ministerial statement that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. Details are little of the case at present, but it seems likely that he will utilise the tribunal to fight the restrictions the UK enacted against him after the Russian aggression. He has already filed a claim against Luxembourg on these grounds, seeking sixteen billion dollars: equivalent to half of state's yearly income. Part of the legal team acting for him in that case? Cherie Blair, spouse of the ex-UK leader.

Trade specialists believe that the EU’s delay in using frozen Russian assets as guarantee for its loan to Ukraine arises from apprehension in Brussels that it could be taken to court in the offshore corporate courts, under a trade agreement. This unprecedented, undemocratic power over elected governments might be preventing the money Ukraine desperately needs.

Empty Promises and Mounting Costs

We were assured that these scenarios wouldn’t happen. In 2014, a former prime minister, promoting the most significant and hazardous of all investment pacts, told us: “We’ve signed investment treaty after trade deal and there has never been a problem in the past.” An expert on this topic described activists of “scaremongering … in reality, ISDS barely touches the UK much”. The overall message seemed to be that solely developing countries had to worry about such legal actions. Predictions that “as corporations grasp the power they now possess, they will redirect their efforts from the poorer states to the strong ones” were greeted by widespread derision.

That warning has now materialised. In the current period, fossil fuel and resource corporations have initiated a historic level of claims against nations across the economic spectrum, opposing – similar to the UK mine – government attempts to halt climate breakdown. Corporations have thus far won one hundred and fourteen billion dollars through ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP