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Can you perceive our system of government functions? Maybe something like this. We elect MPs. They debate and pass bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. End of story. Yet, that’s how it used to work. No longer.

The Emergence of Shadow Courts

Today, overseas companies, and the oligarchs behind them, are able to litigate against nation states for the regulations they pass, at secret arbitration panels staffed by business advocates. The cases take place away from public scrutiny. Unlike our courts, these bodies allow no right of appeal or oversight by judges. The general public are unable to file a case to them, nor can our government, including companies headquartered in this country. They are open exclusively to corporations registered abroad.

When a secret court rules that a government measure may compromise the corporation’s expected profits, it may order compensation of vast sums, running into billions.

This compensation are based not on tangible damages but money the tribunal officials determine the company would perhaps have made. The state might be compelled to drop the legislation. It is discouraged from enacting future policies in that area, due to the risk of being sued.

A System Growing Exponentially

Historically high figures of legal actions are being brought, as companies learn from each other, and private equity finance suits in return for a share of the settlements. The outcome? Sovereignty and democracy are now too costly.

The system is referred to as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the rulings made by parliaments is that this stipulation has been incorporated – absent public approval, and typically amid a climate of extreme secrecy – inside international trade agreements.

A Specific Case: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the senior court. The presiding officer ruled that plans to open the first deep coalmine in the UK for 30 years, in northwest England, were found to be wrongly permitted by the Conservative government, which had agreed to the questionable argument that the mine could have no impact on climate commitments. The Labour government later cancelled the licence the former government had granted. Today, this success faces being overturned by an foreign court accountable to only the entities filing the suit.

During August, a company whose final controllers are located in the tax haven lodged a claim against the UK government. The previous week a tribunal in Washington DC was convened to consider the case.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to go ahead. Citizens have no idea how much this sum represents. What legal team is serving as its counsel in opposition to the British government? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot Sir Geoffrey Cox. The state enacts a policy, the national judiciary supports it, then a international entity challenges it through an unaccountable arbitration panel, and a sitting MP works for its behalf.

The Russian Challenge

Concurrently that the panel on the mining lawsuit was appointed, information emerged from a government response that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. The public knows little of the case so far, but it appears probable that he will utilise the ISDS mechanism to contest the penalties the UK enacted against him subsequent to the invasion of Ukraine. He has already filed a claim against Luxembourg with similar intent, demanding sixteen billion dollars: half that nation's yearly budget. Part of the lawyers on his side? a prominent lawyer, spouse of the former British prime minister.

International law scholars contend that the EU’s procrastination in using frozen state funds as collateral for its financial support package is due to apprehension in Brussels that it could be sued in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over elected governments might be preventing the money Ukraine critically depends on.

False Assurances and Escalating Threats

We were assured that such things wouldn’t happen. In 2014, a government leader, championing the largest and riskiest of all these agreements, declared: “Britain has agreed to investment treaty upon trade deal and we have never seen a case in the past.” An expert on this topic labelled critics of “exaggeration … the truth is, ISDS has little impact on the UK much”. The overall message seemed to be that only poorer nations had to worry about these lawsuits. Warnings that “as corporations start to realise the authority they now possess, they will redirect their efforts from the poorer states to the strong ones” were greeted by general mockery.

That prediction is now a reality. This year, energy and resource corporations have filed a record number of cases against nations across the economic spectrum, opposing – similar to the Whitehaven project – state efforts to halt climate breakdown. Companies have thus far won one hundred and fourteen billion dollars via ISDS, of which energy giants have been awarded $84bn. That is equivalent to the combined GDP