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How do you perceive our system of government operates? Perhaps similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills are enacted as law. Statutes are enforced by the courts. End of story. However, that was how it once functioned. Not anymore.

The Rise of Shadow Courts

In the modern era, overseas companies, or the oligarchs who own them, have the power to sue governments for the laws they pass, at offshore tribunals composed of commercial attorneys. These proceedings are conducted away from public scrutiny. In contrast to domestic courts, these bodies grant no right of appeal or judicial review. The general public are barred from bringing a case to them, just as our government, or even businesses based in this country. Access is granted only to entities operating from foreign soil.

Should an arbitration panel determines that a law or policy could harm the corporation’s expected profits, it can award compensation of hundreds of millions, potentially billions.

These sums are based not on actual losses but money the arbitrators conclude the company would perhaps have made. The state could be forced to abandon its policy. It becomes hesitant to passing future laws along the same lines, worried about facing litigation.

A Mechanism Running Rampant

Unprecedented levels of legal actions are being initiated, as companies observe each other, and hedge funds fund legal actions for a share of a cut of the awards. The outcome? National sovereignty and popular rule are now too costly.

This mechanism is called “investor-state dispute settlement” (ISDS). The reason it is permitted to supersede domestic law and the rulings taken by parliaments is that this clause has been inserted – without democratic mandate, and typically amid conditions of profound opacity – into international trade agreements.

A Specific Example: The Whitehaven Coal Mine

A year ago, activists secured a significant win at the high court. The presiding officer found that proposals to open the first new deep coal mine in the UK for 30 years, in Cumbria, were unlawfully approved by the previous government, which had agreed to the extraordinary assertion that the mine would have had no impact on national carbon targets. The Labour government subsequently revoked the consent the Tories had approved. Now, this victory is under threat by an secret arbitration panel answering to only the companies bringing the case.

In August, a company whose beneficial owners are based in the Cayman Islands initiated proceedings against the UK government. Recently a tribunal in Washington DC was convened to adjudicate on it.

The claimant is seeking compensation from the UK for the revenue it could have earned if the mine had been permitted to commence operations. The public has no idea how much this sum represents. What legal team is acting on its behalf challenging the British government? A member of parliament, and former attorney-general in the previous government, the self-proclaimed patriot the MP. The administration passes a law, the high court supports it, then a overseas corporation contests it through an unaccountable arbitration panel, and a elected official acts on its behalf.

A Sanctions Case

Concurrently that the panel on the mining lawsuit was appointed, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, a sanctioned individual. Details are scarce of the case at present, but it appears probable that he will utilise the arbitration process to challenge the penalties the UK levied against him following the invasion of Ukraine. He has already filed a claim against another European state on these grounds, claiming a colossal sum: an amount representing half government’s yearly income. Part of the counsel on his side? Cherie Blair, spouse of the ex-UK leader.

Legal experts argue that the EU’s delay in utilising seized oligarchs' funds as security for its financial support package is due to concerns within Belgium that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, unaccountable authority over elected governments could be blocking the funds Ukraine critically depends on.

Empty Promises and Escalating Risks

Politicians promised that these events wouldn’t happen. Years ago, a former prime minister, championing the biggest and most dangerous of all these agreements, stated: “The UK has signed investment treaty after trade deal and there has not been a problem in the past.” A consultant on this issue labelled critics of “alarmism … in reality, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that exclusively weaker states should be concerned by such legal actions. Predictions that “as corporations start to realise the influence bestowed upon them, they will turn their attention from the weak nations to the strong ones” were met with widespread derision.

That threat has come to pass. This year, fossil fuel and resource corporations have filed a record number of claims against nations across the economic spectrum, opposing – similar to the Cumbrian coalmine – state efforts to prevent climate breakdown. Corporations have so far won $114bn through ISDS, of which oil majors have been awarded the majority. That represents the combined GDP