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What is your reckon our system of government operates? Perhaps something like this. We elect MPs. They vote on bills. If a majority is secured, the bills become law. Legislation is upheld by the courts. End of story. Well, that used to be how it operated in the past. Not anymore.

The Rise of Shadow Courts

Nowadays, international firms, or the oligarchs behind them, can sue elected administrations for the laws they pass, at secret arbitration panels made up of business advocates. These proceedings are held away from public scrutiny. Unlike our courts, these tribunals allow no avenue for appeal or oversight by judges. You or I cannot take a case to them, and neither can our government, including companies based in this country. They are open exclusively to entities operating from foreign soil.

When a secret court finds that a legislative action may compromise the corporation’s projected profits, it may order financial penalties of hundreds of millions, running into billions.

These awards are based not on real financial harm but compensation the panel members conclude the company might otherwise have made. The government could be forced to rescind the measure. It becomes discouraged from introducing similar legislation of a similar nature, for fear of incurring a lawsuit.

A Mechanism Running Rampant

Unprecedented levels of disputes are being initiated, as companies take cues from each other, and hedge funds fund legal actions in exchange for a cut of the takings. The result? Sovereignty and democracy are turning into unaffordable.

The process is known as “investor-state dispute settlement” (ISDS). The rationale it is permitted to trump a country's own laws and the choices made by parliaments is that this provision has been incorporated – without public consent, and frequently under a climate of profound opacity – inside international trade agreements.

A Real-World Case: The UK Coalmine

Twelve months ago, a conservation group won a great victory at the high court. The judge found that plans to open the first new deep coal mine in the UK for three decades, in northwest England, were found to be wrongly permitted by the outgoing administration, which had accepted the extraordinary assertion that the mine would have had no consequence on national carbon targets. The incoming administration subsequently revoked the licence the previous administration had approved. Today, this success could be compromised by an secret arbitration panel answering to only the corporations petitioning it.

In August, a firm whose final controllers reside in the tax haven lodged a claim versus the UK government. The previous week a dispute settlement body in Washington DC was set up to hear it.

The claimant is litigating against the UK for the money it could have earned if the mine had been allowed to proceed. Citizens have little idea how much this could amount to. Who is serving as its counsel against the UK administration? A sitting MP, and former attorney-general in the previous government, that great patriot Sir Geoffrey Cox. The state passes a law, the national judiciary supports it, then a international entity contests it through an unaccountable arbitration panel, and a member of our parliament represents its behalf.

A Sanctions Lawsuit

Concurrently that the tribunal on the coalmine case was appointed, information emerged from a parliamentary answer that the UK faces another lawsuit under ISDS by a Russian billionaire, a sanctioned individual. The public knows scarce of the case so far, but it seems likely that he will utilise the arbitration process to challenge the sanctions the UK levied against him subsequent to the Russian aggression. He has already started suing Luxembourg for this reason, seeking sixteen billion dollars: an amount representing half government’s yearly income. Included in the lawyers acting for him in that case? a prominent lawyer, married to the previous PM.

Trade specialists contend that the EU’s delay in leveraging immobilised state funds as security for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This remarkable, undemocratic power over elected governments could be blocking the funds Ukraine critically depends on.

False Assurances and Mounting Costs

We were assured that these scenarios wouldn’t happen. In 2014, a government leader, advocating for the most significant and hazardous of all such treaties, declared: “The UK has signed trade deal after trade deal and there has never been a problem in the past.” A consultant on this issue described critics of “scaremongering … in reality, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations should be concerned by ISDS claims. Cautionary notes that “when companies begin to understand the authority they now possess, they will turn their attention from the vulnerable countries to the strong ones” were greeted by general mockery.

That warning is now a reality. This year, fossil fuel and resource corporations have lodged a unprecedented number of claims against nations rich and poor, contesting – similar to the Cumbrian coalmine – government attempts to halt climate breakdown. Corporations have to date won vast sums through ISDS, of which fossil fuel companies have obtained eighty-four billion dollars. That represents the combined GDP