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Can you perceive our system of government functions? Maybe something like this. Citizens choose MPs. They vote on bills. Should a majority is obtained, the bills are enacted as law. Statutes is maintained by the courts. Simple as that. However, that’s how it used to work. No longer.

The Emergence of Shadow Courts

Nowadays, international firms, and the wealthy individuals behind them, have the power to sue nation states for the regulations they pass, at private courts staffed by commercial attorneys. These proceedings take place behind closed doors. In contrast to domestic courts, these panels grant no avenue for appeal or judicial review. You or I are barred from bringing a case to them, nor can our government, or even companies based in this country. Access is granted exclusively to corporations registered abroad.

Should an arbitration panel finds that a government measure could harm the corporation’s projected profits, it can award compensation of hundreds of millions of pounds, even billions.

This compensation constitute not actual losses but compensation the tribunal officials determine the company might otherwise have made. The state might be compelled to rescind the measure. It will be hesitant to passing future laws of a similar nature, due to the risk of being sued.

A Mechanism Growing Exponentially

Unprecedented levels of cases are being filed, as companies observe each other, and private equity bankroll lawsuits in return for a cut of the settlements. The consequence? Sovereignty and democratic governance are now unaffordable.

This mechanism is known as “investor-state dispute settlement” (ISDS). The explanation it is allowed to override domestic law and the rulings enacted by legislatures is that this stipulation has been incorporated – absent public approval, and frequently under conditions of total confidentiality – into bilateral investment treaties.

A Real-World Instance: The Whitehaven Coalmine

Twelve months ago, a conservation group secured a significant win at the high court. The presiding officer ruled that schemes to open the first new deep coal mine in the UK for three decades, in Cumbria, were found to be illegally sanctioned by the previous government, which had agreed to the questionable argument that the mine would have had no consequence on our carbon budgets. The Labour government subsequently revoked the licence the former government had approved. Now, this legal outcome faces being overturned by an foreign court reporting to only the entities bringing the case.

During August, a corporate entity whose beneficial owners reside in the Cayman Islands filed a lawsuit challenging the UK government. Last week a arbitration panel in the United States was set up to adjudicate on it.

This firm is seeking compensation from the UK for the profits it might have made if the mine had been allowed to go ahead. The public has little idea how much this could amount to. What legal team is serving as its counsel in opposition to the UK administration? A sitting MP, and ex-law officer in the outgoing administration, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the high court supports it, then a foreign company challenges it through an undemocratic offshore tribunal, and a member of our parliament acts on its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was appointed, we learned from a ministerial statement that the UK faces another lawsuit under ISDS by a Russian billionaire, Mikhail Fridman. The public knows nothing of the case to date, but it appears probable that he’ll use the ISDS mechanism to challenge the penalties the UK imposed on him subsequent to the Russian aggression. He has filed a claim against another European state with similar intent, claiming sixteen billion dollars: equivalent to half of nation's yearly income. Part of the counsel acting for him in that case? a prominent lawyer, spouse of the previous PM.

Legal experts contend that the EU’s procrastination in leveraging immobilised state 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 bilateral investment treaty. This extraordinary, undemocratic power over sovereign states might be preventing the money Ukraine critically depends on.

False Assurances and Growing Risks

The public was told that such things were not possible. Years ago, a government leader, promoting the biggest and most dangerous of all such treaties, stated: “Britain has agreed to trade agreement after trade deal and there has not been a problem in the past.” An adviser on this matter labelled activists of “scaremongering … the fact is, ISDS has little impact on the UK much”. The prevailing narrative appeared to be that solely developing countries should be concerned by such legal actions. Predictions that “once firms grasp the authority bestowed upon them, they will turn their attention from the poorer states to the wealthy nations” were met with scepticism.

That threat has now materialised. In the current period, oil and gas and mining firms have initiated a record number of claims against nations both wealthy and developing, contesting – as in the case of the Cumbrian coalmine – official measures to prevent global warming. Corporations have so far won one hundred and fourteen billion dollars through ISDS, of which oil majors have been awarded $84bn. That equates to the combined GDP