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How do you understand our system of government functions? Maybe similar to this. The public votes for MPs. They debate and pass bills. If a majority is secured, the bills are enacted as law. Legislation are enforced by the courts. Simple as that. Yet, that used to be how it operated in the past. Those days are over.

The Advent of Shadow Courts

In the modern era, foreign corporations, and the wealthy individuals that control them, are able to litigate against nation states for the laws they pass, at secret arbitration panels made up of business advocates. The cases are conducted behind closed doors. Unlike our courts, these tribunals allow no avenue for appeal or oversight by judges. The general public are unable to file a case to them, and neither can our government, including enterprises headquartered in this country. They are open solely for entities registered abroad.

Should an arbitration panel rules that a law or policy could harm the corporation’s projected profits, it has the power to grant compensation of hundreds of millions, even billions.

These awards constitute not real financial harm but money the panel members decide the company could potentially have made. The administration could be forced to drop the legislation. It will be discouraged from enacting future policies in that area, for fear of incurring a lawsuit.

A Process Spiralling Out of Control

Historically high figures of disputes are being brought, as firms observe each other, and hedge funds finance suits in exchange for a cut of the awards. The outcome? National sovereignty and democracy are turning into too costly.

This mechanism is referred to as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override a country's own laws and the decisions made by legislatures is that this stipulation has been written – absent public approval, and frequently under a climate of total confidentiality – within trade treaties.

A Concrete Case: The UK Coalmine

Twelve months ago, activists won a great victory at the senior court. The presiding officer ruled that proposals to excavate the first new deep coal mine in the UK for 30 years, at Whitehaven in Cumbria, were found to be wrongly permitted by the previous government, which had agreed to the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration subsequently revoked the consent the Tories had granted. Currently, this victory faces being overturned by an foreign court answering to only the corporations bringing the case.

In August, a firm whose ultimate owners are located in the tax haven initiated proceedings versus the UK government. The previous week a tribunal in the United States was established to adjudicate on it.

This firm is seeking compensation from the UK for the revenue it would have generated if the mine had been allowed to proceed. Citizens have little idea how much this might be. Which individual is representing it challenging the UK administration? A member of parliament, and previous senior legal advisor in the previous government, that great patriot Geoffrey Cox. The state passes a law, the national judiciary supports it, then a overseas corporation contests it through an undemocratic arbitration panel, and a member of our parliament acts on its behalf.

A Sanctions Case

Concurrently that the panel on the mining lawsuit was convened, information emerged from a parliamentary answer that the UK is subject to further litigation under ISDS by a Russian oligarch, an oligarch. We know scarce of the case to date, but it seems likely that he will utilise the tribunal to contest the sanctions the UK enacted against him following the war in Ukraine. He has already filed a claim against Luxembourg for this reason, demanding a colossal sum: an amount representing half nation's yearly budget. Among the legal team on his side? a prominent lawyer, spouse of the ex-UK leader.

Trade specialists contend that the EU’s hesitation in leveraging immobilised Russian assets as guarantee for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, secretive influence over democratic administrations may be obstructing the funds Ukraine desperately needs.

Empty Promises and Escalating Threats

Politicians promised that these events could not occur. Previously, a senior politician, championing the largest and riskiest of all investment pacts, stated: “Britain has agreed to trade agreement after trade deal and there has never been a case in the past.” A consultant on this topic accused campaigners of “alarmism … the fact is, ISDS barely touches the UK much”. The general impression was crafted to be that only poorer nations had to worry about ISDS claims. Predictions that “when companies begin to understand the power they’ve been granted, they will shift their focus from the poorer states to the wealthy nations” were greeted by widespread derision.

That prediction is now a reality. This year, fossil fuel and resource corporations have initiated a record number of suits against nations both wealthy and developing, challenging – as in the case of the UK mine – state efforts to stop climate breakdown. Firms have thus far won one hundred and fourteen billion dollars by using ISDS, of which fossil fuel companies have been awarded $84bn. That represents the combined GDP