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What is your reckon our system of government operates? It could be something like this. We elect MPs. They legislate on bills. If a majority is secured, the bills are enacted as law. The law is maintained by the courts. Simple as that. Yet, that was how it once functioned. No longer.

The Emergence of Shadow Tribunals

Nowadays, international firms, or the wealthy individuals that control them, are able to litigate against governments for the policies they pass, at secret arbitration panels composed of business advocates. Such disputes are conducted away from public scrutiny. Differing from national judiciaries, these tribunals allow no avenue for appeal or oversight by judges. You or I cannot take a case to them, just as our government, including businesses headquartered in this country. Access is granted solely for businesses based overseas.

When a secret court rules that a law or policy may compromise the corporation’s anticipated profits, it can award compensation 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 might be compelled to drop the legislation. It will be deterred from enacting future policies along the same lines, for fear of being sued.

A Mechanism Growing Exponentially

Record numbers of disputes are being initiated, as corporations take cues from each other, and private equity fund legal actions in exchange for a share of the takings. The result? National sovereignty and democratic governance are becoming prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede a country's own laws and the choices made by legislatures is that this clause has been written – without public consent, and often in an atmosphere of extreme secrecy – into trade treaties.

A Concrete Instance: The UK Coal Mine

Last year, a conservation group won a great victory at the High Court. The justice determined that schemes to dig the first major coal mine in the UK for 30 years, in Cumbria, had been illegally sanctioned by the Conservative government, which had agreed to the bizarre claim that the mine could have no impact on national carbon targets. The Labour government subsequently revoked the permission the former government had granted. Today, this legal outcome faces being overturned by an secret arbitration panel reporting to exclusively the companies bringing the case.

During August, a firm whose ultimate owners reside in the Cayman Islands initiated proceedings against the UK government. Last week a arbitration panel in the US capital was established to hear it.

The company is suing the UK for the profits it would have generated if the mine had received permission to commence operations. The public has little idea how much this could amount to. Who is serving as its counsel challenging the UK administration? An elected representative, and previous senior legal advisor in the Conservative government, the noted patriot the MP. The state passes a law, the domestic court validates it, then a foreign company challenges it through an undemocratic arbitration panel, and a sitting MP works for its behalf.

An Oligarch's Lawsuit

On the same day that the court on the coalmine case was established, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. Details are nothing of the case to date, but it seems likely that he may employ the tribunal to fight the penalties the UK levied against him following the war in Ukraine. He has already filed a claim against a small nation with similar intent, demanding sixteen billion dollars: half that state's yearly income. Included in the lawyers acting for him in that case? the wife of a former prime minister, wife of the previous PM.

Legal experts believe that the EU’s procrastination in utilising seized Russian assets as guarantee for its loan to Ukraine stems from Belgium’s fear that it could be taken to court in the offshore corporate courts, under a trade agreement. This remarkable, undemocratic power over democratic administrations may be obstructing the funds Ukraine urgently requires.

False Assurances and Escalating Threats

Politicians promised that these events were not possible. In 2014, a senior politician, advocating for the largest and riskiest of all such treaties, stated: “Britain has agreed to trade deal after trade deal and there has never been a case in the past.” An expert on this matter labelled campaigners of “alarmism … the fact is, ISDS does not affect the UK much”. The overall message seemed to be that only poorer nations needed to fear such legal actions. Warnings that “once firms grasp the influence they’ve been granted, they will turn their attention from the vulnerable countries to the wealthy nations” were dismissed with general mockery.

That threat has come to pass. This year, oil and gas and extraction companies have lodged a unprecedented number of suits against nations rich and poor, challenging – similar to the Whitehaven project – state efforts to prevent climate breakdown. Firms have thus far won $114bn via ISDS, of which energy giants have been awarded eighty-four billion dollars. That is equivalent to the combined GDP