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Can you perceive our system of government operates? Perhaps something like this. Citizens choose MPs. They vote on bills. When a majority is obtained, the bills are enacted as law. The law is maintained by the courts. That's it. However, that used to be how it once functioned. No longer.

The Emergence of Shadow Courts

Nowadays, overseas companies, or the oligarchs that control them, can sue nation states for the regulations they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these tribunals allow no avenue for appeal or oversight by judges. Ordinary citizens are unable to file a case to them, nor can our government, or even companies operating from this country. Access is granted only to businesses registered abroad.

When a secret court rules that a legislative action could harm the corporation’s anticipated profits, it has the power to grant financial penalties of hundreds of millions, even billions.

These sums represent not tangible damages but funds the panel members determine the company might otherwise have made. The administration might be compelled to abandon its policy. It will be deterred from enacting future policies along the same lines, for fear of incurring a lawsuit.

A System Growing Exponentially

Historically high figures of cases are being brought, as corporations take cues from each other, and private equity finance suits for a share of a cut of the settlements. The consequence? Sovereignty and democracy are now prohibitively expensive.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The reason it is permitted to trump domestic law and the decisions made by legislatures is that this stipulation has been written – absent public approval, and often in an atmosphere of total confidentiality – into bilateral investment treaties.

A Real-World Instance: The UK Coal Mine

Last year, activists secured a significant win at the high court. The judge determined that plans to open the first major coal mine in the UK for a generation, in Cumbria, were found to be wrongly permitted by the previous government, which had endorsed the bizarre claim that the mine could have no consequence on our carbon budgets. The new government later cancelled the licence the previous administration had issued. Today, this success could be compromised by an secret arbitration panel answering to only the corporations bringing the case.

During August, a corporate entity whose ultimate owners are based in the Cayman Islands filed a lawsuit versus the UK government. The previous week a dispute settlement body in the US capital was established to adjudicate on it.

This firm is litigating against the UK for the profits it would have generated if the mine had received permission to commence operations. Citizens have no clear indication how much this could amount to. What legal team is representing it in opposition to the British government? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The state makes a decision, the national judiciary validates it, then a foreign company challenges it through an secretive offshore tribunal, and a sitting MP acts on its behalf.

An Oligarch's Case

Simultaneously that the tribunal on the coal mine dispute was convened, we learned from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian billionaire, an oligarch. We know nothing of the case to date, but it is highly possible that he’ll use the ISDS mechanism to contest the restrictions the UK imposed on him after the invasion of Ukraine. He has filed a claim against Luxembourg with similar intent, seeking a colossal sum: an amount representing half government’s yearly budget. Part of the counsel acting for him in that case? Cherie Blair, wife of the previous PM.

Legal experts argue that the EU’s delay in using frozen state funds as security for its loan to Ukraine arises from apprehension in Brussels that it could be sued in the ISDS tribunals, under a investment pact. This extraordinary, undemocratic power over sovereign states may be obstructing the money Ukraine critically depends on.

Misleading Claims and Growing Costs

The public was told that such things could not occur. Years ago, a government leader, advocating for the most significant and hazardous of all these agreements, declared: “We’ve signed trade deal after trade deal and there has not been a case in the past.” An expert on this topic labelled critics of “scaremongering … the truth is, ISDS has little impact on the UK much”. The overall message was crafted to be that exclusively weaker states had to worry about such legal actions. Warnings that “once firms start to realise the influence they’ve been granted, they will redirect their efforts from the vulnerable countries to the developed economies” were greeted by scepticism.

That prediction has now materialised. In the current period, energy and mining firms have lodged a record number of claims against nations across the economic spectrum, contesting – as in the case of the Whitehaven project – government attempts to halt global warming. Firms have so far won $114bn via ISDS, of which fossil fuel companies have obtained the majority. That is equivalent to the combined GDP