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Can you understand our system of government functions? It could be along the lines of this. We elect MPs. They debate and pass bills. Should a majority is achieved, the bills pass into law. Legislation is maintained by the courts. That's it. Yet, that used to be how it operated in the past. No longer.

The Emergence of Shadow Courts

In the modern era, overseas companies, or the wealthy individuals that control them, have the power to sue nation states for the policies they pass, at secret arbitration panels staffed by corporate lawyers. These proceedings are held away from public scrutiny. Unlike our courts, these tribunals allow no opportunity to appeal or legal review. The general public cannot take a case to them, and neither can our government, or even businesses operating from this country. The door is open solely for entities operating from foreign soil.

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

These sums represent not real financial harm but compensation the arbitrators conclude the company would perhaps have made. The state could be forced to drop the legislation. It will be deterred from enacting future policies of a similar nature, for fear of facing litigation.

A Mechanism Spiralling Out of Control

Historically high figures of disputes are being filed, as firms observe each other, and investment funds finance suits for a share of a portion of the settlements. The outcome? National sovereignty and democracy are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to supersede national legislation and the choices enacted by legislatures is that this clause has been inserted – without public consent, and typically amid conditions of extreme secrecy – into bilateral investment treaties.

A Concrete Example: The UK Coal Mine

Last year, activists secured a significant win at the High Court. The justice found that schemes to open the first deep coalmine in the UK for 30 years, in Cumbria, were found to be unlawfully approved by the outgoing administration, which had accepted the extraordinary assertion that the mine could have no consequence on climate commitments. The Labour government then withdrew the consent the former government had issued. Currently, this victory is under threat by an secret arbitration panel answering to no one but the corporations petitioning it.

During August, a company whose beneficial owners are based in the tax haven initiated proceedings challenging the UK government. Last week a tribunal in the US capital was set up to adjudicate on it.

The claimant is seeking compensation from the UK for the profits it could have earned if the mine had been allowed to commence operations. We have no idea how much this sum represents. Which individual is acting on its behalf challenging the UK administration? A member of parliament, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The administration enacts a policy, the national judiciary validates it, then a international entity contests it through an undemocratic offshore tribunal, and a elected official represents its behalf.

An Oligarch's Case

Simultaneously that the panel on the mining lawsuit was established, we learned from a government response that the UK faces another lawsuit under ISDS by a Russian oligarch, a sanctioned individual. We know nothing of the case at present, but it appears probable that he’ll use the arbitration process to challenge the sanctions the UK enacted against him following the war in Ukraine. He has previously started suing another European state for this reason, seeking $16bn: half that government’s yearly income. Part of the counsel acting for him in that case? the wife of a former prime minister, wife of the former British prime minister.

Trade specialists believe that the EU’s delay in using frozen oligarchs' funds as collateral for its financial support package is due to Belgium’s fear that it could be sued in the offshore corporate courts, under a investment pact. This extraordinary, undemocratic power over democratic administrations could be blocking the funds Ukraine desperately needs.

False Assurances and Growing Costs

The public was told that these scenarios could not occur. In 2014, a government leader, promoting the biggest and most dangerous of all investment pacts, stated: “We’ve signed trade agreement upon trade deal and there has not been a case in the past.” An adviser on this issue described activists of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message was crafted to be that only poorer nations needed to fear ISDS claims. Warnings that “as corporations start to realise the influence they’ve been granted, they will shift their focus from the poorer states to the strong ones” were greeted by scepticism.

That warning is now a reality. This year, energy and resource corporations have filed a record number of suits against nations rich and poor, opposing – similar to the UK mine – official measures to halt global warming. Companies have to date won $114bn via ISDS, of which energy giants have been awarded the majority. That equates to the combined GDP