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Can you perceive our system of government functions? Maybe along the lines of this. The public votes for MPs. They debate and pass bills. When a majority is obtained, the bills pass into law. The law is maintained by the courts. End of story. Yet, that’s how it used to work. No longer.

The Rise of Shadow Courts

In the modern era, international firms, and the wealthy individuals that control them, are able to litigate against governments for the policies they pass, at secret arbitration panels made up of commercial attorneys. The cases are conducted in secret. In contrast to domestic courts, these bodies allow no avenue for appeal or judicial review. The general public cannot take a case to them, nor can our government, or even enterprises based in this country. The door is open only to entities registered abroad.

If a tribunal finds that a government measure may compromise the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These sums represent not tangible damages but money the arbitrators determine the company could potentially have made. The administration could be forced to rescind the measure. It is hesitant to enacting future policies along the same lines, due to the risk of incurring a lawsuit.

A System Spiralling Out of Control

Record numbers of cases are being brought, as corporations observe each other, and hedge funds fund legal actions for a share of a portion of the awards. The outcome? Sovereignty and democratic governance are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to override domestic law and the decisions made by elected bodies is that this provision has been incorporated – without public consent, and typically amid an atmosphere of profound opacity – within bilateral investment treaties.

A Concrete Case: The Whitehaven Coalmine

A year ago, environmental campaigners achieved a major legal triumph at the High Court. The justice ruled that schemes to open the first major coal mine in the UK for 30 years, in Cumbria, were found to be illegally sanctioned by the outgoing administration, which had endorsed the questionable argument that the mine would have had no impact on national carbon targets. The new government later cancelled the permission the former government had approved. Today, this legal outcome faces being overturned by an foreign court accountable to only the corporations filing the suit.

During August, a company whose ultimate owners are based in the tax haven initiated proceedings versus the UK government. The previous week a tribunal in the US capital was set up to hear it.

The company is litigating against the UK for the money it might have made if the mine had been permitted to proceed. We have no idea how much this might be. Who is representing it challenging the UK administration? A member of parliament, and former attorney-general in the Conservative government, the noted patriot Sir Geoffrey Cox. The administration makes a decision, the high court supports it, then a overseas corporation challenges it through an secretive offshore tribunal, and a sitting MP works for its behalf.

The Russian Challenge

On the same day that the court on the mining lawsuit was established, information emerged from a ministerial statement that the UK is also being sued under ISDS by a Russian oligarch, Mikhail Fridman. Details are scarce of the case to date, but it seems likely that he may employ the arbitration process to contest the penalties the UK levied against him after the war in Ukraine. He has initiated proceedings against a small nation with similar intent, demanding a colossal sum: half that nation's annual revenue. Among the lawyers representing him there? the wife of a former prime minister, wife of the previous PM.

International law scholars believe that the EU’s hesitation in using frozen state funds as guarantee for its aid for Ukraine arises from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a investment pact. This extraordinary, secretive influence over sovereign states could be blocking the finance Ukraine critically depends on.

Empty Promises and Mounting Risks

Politicians promised that such things wouldn’t happen. Previously, a senior politician, advocating for the largest and riskiest of all such treaties, declared: “We’ve signed investment treaty after trade deal and there has not been a case in the past.” An expert on this matter labelled activists of “alarmism … the truth is, ISDS does not affect the UK much”. The prevailing narrative seemed to be that solely developing countries had to worry about ISDS claims. Warnings that “once firms start to realise the power they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were dismissed with scepticism.

That prediction has now materialised. This year, oil and gas and mining firms have filed a record number of suits against nations rich and poor, contesting – as in the case of the UK mine – government attempts to prevent climate breakdown. Corporations have to date won one hundred and fourteen billion dollars via ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP