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Can you understand our system of government works? It could be along the lines of this. The public votes for MPs. They vote on bills. When a majority is secured, the bills become law. Legislation is maintained by the courts. That's it. However, that was how it used to work. Not anymore.

The Rise of Shadow Courts

In the modern era, international firms, along with the oligarchs that control them, are able to litigate against governments for the laws they pass, at private courts staffed by corporate lawyers. The cases take place away from public scrutiny. Unlike our courts, these tribunals grant no opportunity to appeal or oversight by judges. The general public are barred from bringing a case to them, nor can our government, or even enterprises based in this country. They are open solely for businesses operating from foreign soil.

Should an arbitration panel rules that a law or policy may compromise the corporation’s anticipated profits, it can award financial penalties of hundreds of millions of pounds, even billions.

These awards constitute not tangible damages but compensation the panel members decide the company would perhaps have made. The government could be forced to rescind the measure. It becomes deterred from introducing similar legislation of a similar nature, worried about incurring a lawsuit.

A System Running Rampant

Unprecedented levels of legal actions are being filed, as firms learn from each other, and investment funds finance suits in return for a portion of the settlements. The outcome? National sovereignty and popular rule are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it can trump domestic law and the choices enacted by parliaments is that this clause has been written – absent public approval, and frequently under conditions of profound opacity – within bilateral investment treaties.

A Concrete Example: The UK Coalmine

Twelve months ago, environmental campaigners won a great victory at the High Court. The justice ruled that schemes to open the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were unlawfully approved by the previous government, which had endorsed the questionable argument that the mine would have no impact on national carbon targets. The incoming administration then withdrew the licence the previous administration had granted. Now, this success could be compromised by an offshore tribunal answering to no one but the companies filing the suit.

During August, a firm whose ultimate owners are located in the tax haven filed a lawsuit versus the UK government. Last week a arbitration panel in Washington DC was convened to adjudicate on it.

The company is seeking compensation from the UK for the revenue it might have made if the mine had received permission to go ahead. Citizens have no clear indication how much this sum represents. Who is representing it challenging the UK administration? A member of parliament, and previous senior legal advisor in the previous government, the noted patriot the MP. The state makes a decision, the national judiciary supports it, then a overseas corporation contests it through an unaccountable private court, and a member of our parliament represents its behalf.

The Russian Challenge

Concurrently that the panel on the coal mine dispute was convened, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian billionaire, a sanctioned individual. We know little of the case to date, but it is highly possible that he’ll use the ISDS mechanism to fight the sanctions the UK imposed on him subsequent to the war in Ukraine. He has already filed a claim against another European state for this reason, demanding sixteen billion dollars: half that government’s yearly budget. Among the counsel on his side? the wife of a former prime minister, spouse of the previous PM.

International law scholars contend that the EU’s hesitation in leveraging immobilised Russian assets as security for its financial support package arises from concerns within Belgium that it could be subject to litigation in the secret arbitration panels, under a trade agreement. This remarkable, secretive influence over democratic administrations could be blocking the money Ukraine urgently requires.

Misleading Claims and Growing Risks

Politicians promised that these events could not occur. In 2014, a former prime minister, advocating for the biggest and most dangerous of all investment pacts, stated: “The UK has signed trade deal after trade deal and there has not been a case in the past.” An expert on this topic described campaigners of “exaggeration … the truth is, ISDS does not affect the UK much”. The general impression appeared to be that exclusively weaker states had to worry about ISDS claims. Cautionary notes that “when companies begin to understand the power bestowed upon them, they will turn their attention from the vulnerable countries to the developed economies” were greeted by general mockery.

That prediction has now materialised. In the current period, energy and resource corporations have lodged a historic level of cases against nations both wealthy and developing, contesting – like the example of the Cumbrian coalmine – government attempts to stop climate breakdown. Firms have to date won one hundred and fourteen billion dollars through ISDS, of which oil majors have obtained eighty-four billion dollars. That equates to the combined GDP