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What is your reckon our political system functions? Perhaps something like this. The public votes for MPs. They legislate on bills. Should a majority is obtained, the bills pass into law. The law is maintained by the courts. Simple as that. However, that’s how it once functioned. Not anymore.

The Advent of Secret Tribunals

Nowadays, overseas companies, or the wealthy individuals that control them, can sue elected administrations for the policies they pass, at offshore tribunals composed of corporate lawyers. The cases take place in secret. Unlike our courts, these tribunals provide no avenue for appeal or judicial review. Ordinary citizens are barred from bringing a case to them, and neither can our government, including enterprises based in this country. Access is granted exclusively to businesses based overseas.

When a secret court rules that a government measure might diminish the corporation’s anticipated profits, it can award financial penalties of vast sums, even billions.

This compensation are based not on actual losses but compensation the tribunal officials conclude the company could potentially have made. The state might be compelled to abandon its policy. It becomes deterred from enacting future policies of a similar nature, due to the risk of being sued.

A Process Spiralling Out of Control

Unprecedented levels of cases are being brought, as firms observe each other, and investment funds bankroll lawsuits for a share of a share of the settlements. The consequence? Sovereignty and democratic governance are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override national legislation and the decisions taken by parliaments is that this provision has been inserted – without democratic mandate, and typically amid a climate of total confidentiality – inside bilateral investment treaties.

A Specific Example: The UK Coalmine

Last year, activists won a great victory at the High Court. The justice ruled that schemes to open the first deep coalmine in the UK for a generation, in northwest England, had been unlawfully approved by the Conservative government, which had endorsed the questionable argument that the mine could have zero effect on our carbon budgets. The incoming administration then withdrew the consent the previous administration had granted. Now, this victory faces being overturned by an foreign court answering to only the entities filing the suit.

Last August, a corporate entity whose ultimate owners are located in the tax haven filed a lawsuit versus the UK government. The previous week a arbitration panel in the United States was set up to hear it.

The company is litigating against the UK for the revenue it might have made if the mine had been permitted to proceed. Citizens have no idea how much this might be. Who is acting on its behalf in opposition to the British government? A member of parliament, and ex-law officer in the Conservative government, the noted patriot the MP. The state passes a law, the high court supports it, then a international entity disputes it through an unaccountable arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Case

Concurrently that the panel on the mining lawsuit was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, an oligarch. Details are little of the case at present, but it seems likely that he’ll use the arbitration process to challenge the penalties the UK levied against him following the Russian aggression. He has previously initiated proceedings against a small nation for this reason, demanding sixteen billion dollars: an amount representing half state's yearly income. Part of the legal team acting for him in that case? a prominent lawyer, married to the previous PM.

International law scholars believe that the EU’s hesitation in using frozen Russian assets as security for its financial support package is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a bilateral investment treaty. This remarkable, undemocratic power over democratic administrations might be preventing the money Ukraine desperately needs.

False Assurances and Mounting Costs

Politicians promised that these events were not possible. Previously, a senior politician, championing the most significant and hazardous of all these agreements, stated: “We’ve signed investment treaty after trade deal and there has not been a problem in the past.” An adviser on this issue described critics of “scaremongering … the truth is, ISDS does not affect the UK much”. The prevailing narrative was crafted to be that solely developing countries should be concerned by such legal actions. Predictions that “once firms start to realise the authority they’ve been granted, they will redirect their efforts from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction has come to pass. Recently, fossil fuel and mining firms have filed a unprecedented number of claims against nations rich and poor, contesting – as in the case of the UK mine – government attempts to prevent climate breakdown. Companies have thus far won one hundred and fourteen billion dollars through ISDS, of which oil majors have secured the majority. That represents the combined GDP