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Can you perceive our political system functions? Maybe something like this. Citizens choose MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. The law are enforced by the courts. End of story. Well, that used to be how it once functioned. Not anymore.

The Advent of Shadow Tribunals

Nowadays, foreign corporations, and the billionaires behind them, have the power to sue elected administrations for the regulations they pass, at offshore tribunals made up of corporate lawyers. Such disputes are conducted away from public scrutiny. Unlike our courts, these bodies allow no opportunity to appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, or even companies headquartered in this country. Access is granted solely for entities registered abroad.

Should an arbitration panel determines that a law or policy could harm the corporation’s projected profits, it can award damages of hundreds of millions of pounds, running into billions.

These awards represent not real financial harm but money the panel members determine the company could potentially have made. The government may have to rescind the measure. It becomes discouraged from passing future laws in that area, worried about being sued.

A Mechanism Spiralling Out of Control

Unprecedented levels of legal actions are being initiated, as corporations learn from each other, and hedge funds fund legal actions in return for a portion of the awards. The result? Sovereignty and democracy are becoming unaffordable.

The system is called “investor-state dispute settlement” (ISDS). The explanation it is allowed to trump domestic law and the choices taken by parliaments is that this provision has been written – without public consent, and often in an atmosphere of extreme secrecy – inside bilateral investment treaties.

A Real-World Example: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The justice found that proposals to excavate the first new deep coal mine in the UK for a generation, in Cumbria, had been wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine would have no impact on national carbon targets. The incoming administration subsequently revoked the consent the Tories had issued. Currently, this success is under threat by an offshore tribunal answering to only the entities filing the suit.

Last August, a company whose beneficial owners are based in the Cayman Islands lodged a claim challenging the UK government. The previous week a arbitration panel in the US capital was convened to hear it.

The claimant is litigating against the UK for the money it might have made if the mine had been allowed to commence operations. We have little idea how much this could amount to. Who is acting on its behalf in opposition to the state? A member of parliament, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The administration makes a decision, the high court upholds it, then a international entity disputes it through an secretive arbitration panel, and a member of our parliament represents its behalf.

An Oligarch's Challenge

On the same day that the tribunal on the mining lawsuit was established, we learned from a parliamentary answer that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know nothing of the case at present, but it seems likely that he may employ the tribunal to fight the sanctions the UK levied against him subsequent to the invasion of Ukraine. He has filed a claim against another European state on these grounds, claiming sixteen billion dollars: an amount representing half state's yearly budget. 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 argue that the EU’s procrastination in utilising seized oligarchs' funds as collateral for its aid for Ukraine stems from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a trade agreement. This unprecedented, undemocratic power over elected governments could be blocking the funds Ukraine critically depends on.

Misleading Claims and Escalating Threats

Politicians promised that these scenarios could not occur. Previously, a government leader, championing the largest and riskiest of all such treaties, stated: “Britain has agreed to investment treaty after trade deal and there has never been a problem in the past.” An expert on this topic labelled activists of “scaremongering … in reality, ISDS has little impact on the UK much”. The prevailing narrative seemed to be that only poorer nations should be concerned by ISDS claims. Predictions that “when companies grasp the authority they’ve been granted, they will redirect their efforts from the weak nations to the developed economies” were greeted by general mockery.

That prediction is now a reality. In the current period, oil and gas and mining firms have lodged a record number of claims against nations across the economic spectrum, challenging – as in the case of the UK mine – official measures to stop climate breakdown. Companies have thus far won $114bn via ISDS, of which fossil fuel companies have secured the majority. That equates to the combined GDP